Following on from a strong 2015, experts have predicted that the
UK's commercial property market could become more polarised during
the next year.

The latest analysis from Schroders has shown another year of
positive performance, with unleveraged total returns likely to be
close to 15 per cent, with one of the keys to success being rental
recovery.

A broad based recovery in rental values was considered to be a
key difference in the market when compared to 2014, with a
continued favourable fall in real estate yields was also considered
a major driver.

Central London offices have continued to lead the upswing, with
a number of other cities including Brighton, Bristol, Cambridge and
Oxford all seeing significant increase in office rents. 
Industrial rents also increased in a number of different locations,
with demand boosted by on-line retailers and parcel couriers.

The retail sector is still adjusting to multi-channel sales,
with pockets of rental growth occurring in London, but with many
centres also having a number of vacancies available.

Some commentators are already voicing the potential idea that
the market is currently at the top of the cycle.  Duncan Owen,
head of real estate for Schroders, highlighted the fact that
capital values have risen by 25 per cent in the last three years,
and that traditionally these values have been cyclical.

Mr Owen said:

'This sentiment is understandable, but not necessarily rational.
The immediate trigger for previous downturns has been a recession,
which has depressed rents and pushed up real estate yields as
investors have withdrawn from the market and liquidity has
dropped.'

'In addition, commercial real estate has had a habit of
contributing to its own downfall, either through excessive
borrowing which inflated prices such as from 2005 to 2007, or
because of a boom in development which left an oversupply of space,
for example from 1988 to 1990, and falls in rents.'

Overall, Schroder believes that capital values will continue to
rise, but not at the same pace as in 2014 and 2015, with total
returns expected to come in at between 7 per cent and 9 per
cent.

 

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