Mike Oldrieve MRICS of South West property consultants Vickery Holman looks at the state of the investment market:
The recovery is complete with South West investment property yields back to levels achieved prior to the recession as ever increasing funds chase a dwindling supply of investment properties. This bodes well for the development industry as we look to an increased supply of new stock over the next 18 months.
The UK economy maintained its steady growth through 2015 with modest increase in consumer demand, manufacturing output, construction and housing markets, according to the Bank of England’s latest monthly report. Inflation stabilised with consumer services price inflation showing a modest increase prompting comments from the Governor of possible increases in the interest rate towards the end of the year.
The fears of a slowdown in the market due to the election did not appear and with the new Conservative Government the market has continued to strengthen and we are expecting a busy autumn as the market returns from its summer holidays.
Industrial property has led the way in the South West with prime yields falling to circa 7.25% net initial. There are even odd examples demonstrating yields below 7%, a trend we are monitoring carefully. Multi-lets dipped below the 8%, as demonstrated by the sale of one or two blocks of trade counters. The industrial sector has however been dominated by a lack of quality stock. Investors with the lack of multi-let estates are focusing on single let opportunities which they can build into a portfolio.
The industrial occupier market continues to show improvements and as supply dries up it is forcing occupiers to look at design build opportunities. Investors should keep their eyes and ears open for new build investments for sale in 2016.
Offices were the last sector to recover which they did in the second quarter of 2015 with multi-lets still looking undervalued, with a number of deals still in double figure net initial yield territory. Do not expect this to last however with the reduction in supply, due to conversions to residential, pushing up rents and making multi-let’s look even more attractive. Some sectors of the market already recognise this. Quality of stock and environmental issues will remain key in this market.
Retail continues to defy the pundits with prime yields back down to below 6% net initial. The gap between prime and secondary does however remain and there are some real opportunities to add value, if you know what you are doing, particularly with more requirement lists appearing from a range of new and established retailers. The Banks, despite their troubles, are still top of the picks. Investors should have half an eye on interest rates but we do not see any increase slowing the pace of the market which will continue to perform strongly in the third quarter of 2015.
