Regional boost helps commercial property returns hit 3-year high

A recovery in regional property values during the final months of 2013 has boosted commercial property returns to the highest levels seen since 2010, according to the latest data from IPD.

Real estate outside of London accounts for 63.6 per cent of the £11.6bn UK commercial property market as measured by IPD.

IPD notes that signs of a steady improvement in the UK economy and strengthening GDP figures have led to “growing investor confidence in real estate outside London”.

Capital values for the UK excluding London rose at a pace not far behind the national average at a rate of 2.2 per cent  during the final quarter of 2013, according to IPD.

IPD highlights cities including Aberdeen, Brighton and Cambridge where total returns exceeded 5 per cent after property values rose more than 3.5 per cent in the fourth quarter.

These improvements in regional property have helped to drive returns on commercial property which hit 4.4 per cent during the final quarter of last year, says IPD, pushing annual UK total returns to their highest levels since 2010 at 10.5 per cent.

IPD adds that the opportunities in commercial property outside of London will be “welcomed” by investors seeking higher income returns.

“Rising regional returns will be welcomed by investors, who have been looking beyond the capital in their quest to benefit from the higher income returns available elsewhere as prime yields have fallen,” it says.

“The discounting of UK regional assets has made them very competitive, with values on average 21 per cent lower than their 2007, pre-recession peak, and income yields in excess of 6.4 per cent in many areas, over a third higher than the central London average.”