The forthcoming EU Referendum has split the UK commercial property investment market into two, according to the latest market outlook report from a specialist real estate asset management company.
Blue Marble Asset Management says, in its Barometer for Summer 2016, that a slowdown in activity among institutional investors as they wait for the result of the EU Referendum is in stark contrast to a buoyant lower end market where private investors are still very keen to do deals, sometimes focusing on securing yield at the expense of the capital value.
Tim Matthews, Chief Executive of Birmingham- and Worcester-based Blue Marble Asset Management, says: “Activity at the lower end (£1 – £5 million lots) remains very buoyant with the majority of sales still selling by way of final and best bids, and in some cases surprisingly high prices are being paid by private investors keen to earn a higher rate of return on equity compared to the other principal forms of investment.
“Investor confidence is being boosted by strong occupational demand which is fuelling rental value growth and investors are beginning to believe that ‘rental growth is here to stay’, at least in the short/medium term,” continues Mr Matthews.
In its UK Monthly Index CBRE reports commercial property rental value growth to be 0.8% in the first four months of the year. This equals the year to date growth for the same period in 2015 and surpasses 2014’s figure of 0.6%.
Mr Matthews says: “Private investors are also encouraged by the overall annual returns from commercial property, which although they are falling (11.4% at the end of April 2016, down from 13.4% at the end of February), the asset class is performing well compared to equities (-5.7%) and gilts (4.9%) over the same period.
“However, the danger for unsophisticated private investors is that they are chasing the yield at the expense of capital value and will overpay for properties.”