21 November 2018 | Herpreet Kaur Grewal
Demand for UK commercial property remains strong despite continued lack of clarity over Brexit.
European investors are becoming risk-averse to the UK market because of the uncertainty posed by Brexit, but demand from other overseas investors - particular from China and the Far East - has strengthened in 2018, according to a review by property company GVA.
Domestic investors have also made a 'comeback' to the UK market and have accounted for about 12 per cent more acquisitions in 2018 compared with the previous year.
Regardless of political uncertainty, the fundamentals of the UK commercial property market will continue to make it "an attractive place to invest and London remains the number one priority target of investors outside of Europe", states GVA.
But there is a large divergence between assets, with average industrial yields now significantly below office and retail yields. Investors continue to scale back their retail exposure as the sector continues to struggle from a combination of higher costs associated with increased taxes and input costs as well as the structural shift towards online shopping.
But GVA says there remains "a compelling story for industrial investment which is largely driven by strong occupier demand, good income streams, a lack of available standing stock and limitations to speculative development" and said it expected "the downward pressure on yields to continue in 2019, albeit at a slower pace".
In the North East, the lack of availability of investment property is one of the biggest factors affecting growth and there remains strong competition, particularly for prime well let assets. This was demonstrated by the sale of Unit 5 Greenfinch Way, Newburn Riverside, where a net initial yield of 6.3 per cent was achieved for a five-year term certain of government income. Industrial continues to be the sector of choice for investors in the North East.
Overall, GVA concludes that the UK commercial property market will "remain attractive with the exception of retail" and "the global weight of money against a limited supply will keep yields low for many assets".