Mike Oldrieve MRICS of South West property consultants Vickery Holman writes: 2015 saw the recovery of the South West Property investment market with yields back to levels achieved prior to the recession. The lack of supply particularly due to minimal development activity is making competition for quality stock fierce and frustrating investors.
ECONOMY
The UK economy maintained its steady growth through 2015 driven by services and construction output but the pace of growth has eased according to the latest quarterly figures from The Bank of England. In particular, manufacturing growth has slowed, partly reflecting the effects of sterling’s earlier appreciation and subdued world demand on export supply chains. The housing market continued to make slight progress with a very competitive mortgage market but continued negative pressure on consumer price inflation seems to have pushed interest rate rises even further off.
PROPERTY MARKET
According to the Royal Institution of Chartered Surveyors (RICS) latest quarterly Commercial Property Market Survey occupier and investor demand continued to improve across the UK whilst supply continued to decline maintaining significant upward pressure on rents and capital values. The RICS predicts further increase for at least the next 12 months although does hint at the London market nearing its peak. This is backed up by the IPD UK Monthly Property Index which indicates that the All Property index increased by 3.0% in the fourth quarter of 2015 which annualised equates to 13.1%. This can be compared with equities at -2.2% for the year.
INDUSTRIAL
Industrial property has led the way in the South West with prime yields falling to circa 6.5% net initial with the odd examples demonstrating yields below 6% which we are monitoring. Multi-let estates dipped below 10% with smaller estates now sub 8.0% net initial. The industrial sector has however been dominated by a lack of quality stock and the number of enquiries from occupiers for new build is increasing. Investors should keep their eyes and ears open for new build investments for sale in 2016.
OFFICES
The office sector was the last to recover in the second quarter of 2015 with sales such as Vangaurd House, Matford, Exeter let to Barratts selling for £1.52m a net initial of 6.85%. Multi-lets are 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-lets look even more attractive. Quality of stock and environmental issues will remain key in this market.
RETAIL
Retail continues to defy the pundits with prime yields once again below 6% net initial as witnessed by the sale of WH Smith in Tavistock. 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. The Banks, despite their troubles, are still top of the picks.
