Richard Kirby, who works for F&C REIT, has said that while there are limited opportunities for capital growth in the commercial property market, discerning investors will be able to make money if they use good strategies. The commercial property market in the UK is shown as an asset class that delivers a stable and high income stream and does offer some opportunities for capital growth.
In the last 30 years, 23 of those years have seen capital growth for commercial property. However, this growth has tended to be slow and in only seven of those 30 years did the growth move into double digits.
The current recovery, in its first year, saw a significant rise in capital values. In the last year however this growth has slowed significantly and is now below 5%, these are according to figures by IPD quarterly index. It is expected that there would be an increase in market performance shortly.
Consensus from the Investment Property Forum is that there will be increased capital growth in the next five years. But the average growth will be just below 1.5% per annum, hardly an inspiring figure. Of all the estimates the highest is still a very limited 3% average.
Outside of London shops and offices have decreased in their capital value. This suggests that outside London the opportunity for capital growth is not good, most analysts suggest that this will remain the case for the next two years.
It is expected that London will outperform the rest of the UK in its economic recovery. It is expected that offices in the City will receive the greatest growth in capital values. This is largely due to London having an ever-increasing role in the international economy.
The commercial property in central London has been seen as a good investment and a source of strength for those invested in this type of property. The poorly performing economy has meant that the value of offices might fall, but shops in central London are performing better as they are able to draw money from tourism.
While it is tempting to analyse the entire UK in terms of regions and areas this can often be misleading when assessing property values. Every property is unique and each one needs to be assessed for its own investment potential. Investors should focus on the assets fundamentals and not just its location in the sector in which it operates.