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The All Property Index yield remains at 5.1%

  • Thursday, December 28, 2017

London city skyline UK

Despite Brexit uncertainty, the UK commercial real estate market has continued to behave in line with long term trends. Asian investors accounted for the majority of oversea investors but American and German investors were also active.

A weaker economic environment will almost certainly subdue investor demand but international buyers will still remain attracted to a weakened sterling denominated asset. Local buyers may postpone decision making until there is greater clarity over Brexit.

Forecasts for commercial real estate suggest strong returns for 2017 and beyond. The latest MSCI UK All Property Index takes a very positive view on capital growth at 8.2% in 2017. Such results are unexpected in light of the political and economic uncertainty. The five year forecast of 6.9% pa does however look a little optimistic.

The BoE has called valuations in the UK commercial property market “stretched and vulnerable to interest rate rises”. Despite this warning, the All Property Index yield has remained at 5.1% since the summer of 2016. This stability reflects the strong demand for office space, particularly in London after the depreciation in sterling.

Yields in the retail sector have risen. These values are helped by low bond yields, gilt rates and less forced sellers in the market.

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Article by

Chartered Financial Adviser

Chris is a Chartered Independent Financial Adviser and leads the investment team.