Competition from investors for a limited supply of prime UK commercial real estate assets is leading to increasingly aggressive bidding with yields falling 35 basis points in October, the largest monthly fall since at least 1993…
As a result there is widespread consensus amongst domestic and overseas investors that the UK market now offers historically good value in what could be a limited window of opportunity to secure well priced assets in what is the most established and sophisticated European commercial real estate market, according to Cushman & Wakefield's November Business Briefing on the UK Property Investment market.
The average prime yield across all sectors is now 6.58% (83 basis points lower than in March) with 21 of the 25 key market segments analysed now on a downward trend, it says.
A lack of stock is subduing activity however, and a marked increase in supply looks unlikely in the short term, it adds.
But new requirements for London office space totalling almost 1 million square feet have been launched in the last month by major corporates and this has boosted the market even further.
Since the summer the industrial sector has seen the strongest overall yield compression with the headline average falling 123 basis points.
However, retail is currently the most favoured sector, in particular, retail warehouses where aggressive bidding cut yields by 85 basis points in October alone.
Office yields have fallen 44 points over the same period.
‘Investors seem to believe that they will look back on 2009 as an historic low point for pricing so it's no surprise that buyers are rushing in now so they can claim they made a purchase at the right time,' said David Erwin, head of UK capital markets, Cushman & Wakefield.
‘However, with a real shortage of quality property to offer them, some commentators are already worrying that we're heading back into a bubble.
Only time will tell if this is right but it's certainly true that for those that want to sell stock they don't see as a long term hold, now is a great time to test the market,' he added.
But analysts believe that there won't be any real equilibrium coming back into the market until property supply increases and that is unlikely to happen unless the banks start to unlock some stock.