The commercial property market will continue to perform well in 2014, providing double-digit returns across all sectors, according to forecasts from BNP Paribas Real Estate.
Overall, the international property adviser is forecasting all property to return 12.6% this year, relative to its outturn of 10.9% in 2013 and a third year of double digits in 2015, but the market will slow towards the end of the five year period.
The leading international real estate adviser launched its research at its Spring Capitalise event for investors, in which BNP Paribas’ adviser to the chairman, Jean Lemierre (former president of the European Bank for Reconstruction and Development), also shared his economic outlook for the UK and European economies.
During the event, BNP Paribas Real Estate’s UK CEO, John Slade stated: “In our last Capitalise event in September 2013, we said that there would be growth in investment expenditure and with more than £21bn of investment transacted in the final quarter of the year (which is almost as much as was traded in the whole of 2008 and higher than any quarter in 2007), we were correct on our forecasts and we expect these trends to continue.”
In 2013, Central London attracted 44% of total investment with overseas buyers representing 69% of this, predominantly Far and Middle Eastern investors. Outside London, 25% of investment came from abroad and mainly from more mature foreign sources such as Germany. Looking ahead, there is still a weight of money from overseas, for example the compulsory superannuation funds from countries such as Australia and Malaysia, the more mature players, such as the US private equity firms and Middle Eastern investors, and the new players, such as the Greeks and Russians.
Looking at the year ahead in further detail, BNP Paribas Real Estate predicts that the London market will continue to perform well, particularly City offices returning nearly 17%. Other markets are expected to pick up this year; for example, South Eastern offices should perform marginally better than the West End returning 14.3% and 14.2%, respectively. Distribution warehouses will also be a top performing sector, returning nearly 15%.
Slade continued: “We believe the office sector will continue to be the main driver of rental performance, no longer pushed on solely by London, although undoubtedly the capital will still have an important role to play.”
BNP Paribas Real Estate’s UK head of research, Claire Higgins, said: “We expect the retail and industrial sectors to return 11.5% and 13.5% respectively this year, representing their peak in this cycle. Offices will still outperform both, returning around 14%, but this will represent a small decline on last year as the rapid growth in Central London starts to ease and the rest of the country begins to catch up.”
In overall performance terms, industrial is predicted to be the best performing sector in terms of total returns on average across the five year period as a whole. Additional market leaders will be South East and regional offices.
“We expect Central London office yields to be pushed down to very low levels over the next couple of years, and consequently office returns will slow on average as London cools. In all, we expect all property to return an average of 7% per annum over the period to 2018.” Higgins added.
Slade concluded: “The good news is that our economy is still recovering and with a lack of supply, London and the UK offer transparency and maturity while long leases prevail. We would advise investors to look to London for low risk and to the regions for the returns.”
