UK Real Estate Performs Strongly In 2013

By Editorial 05 February, 2014

A recovery in property values increased investors' returns from property to 4.4 percent in the fourth quarter of 2013, which in turn boosted annual returns to 10.5 percent – the highest level since 2010, according to the latest data from real estate analysis provider IPD.

Improving business and consumer sentiment in core cities such as Manchester, Birmingham, Edinburgh and Leeds coupled with the continuing strength of London and the South East, has helped capital values grow by 2.9 percent during the last quarter and by 4.3 percent for the year.

According to the IPD UK Quarterly Property Index, property performance outside London has been muted since the financial crisis, while London has prospered due to its safe-haven status as investors moved money out of Europe under the threat of financial contagion. As a result, since December 2010, commercial real estate values have risen by 26 percent in Central London – but have fallen by 4 percent in the rest of the UK.

In contrast, the UK's strong commercial property return in 2013 was more broadly-based. The steadily improving economic situation, underlined by GDP estimates from the ONS this week which showed the economy grew by 1.9 percent last year, included a strong regional component. This resurgence has contributed to growing investor confidence in real estate outside London, which accounts for 63.6 percent of the GBP11.6bn UK commercial property market measured by IPD.

Capital values for the UK excluding London rose by 2.2 percent in Q4, not far below the national average, with the biggest winners, Aberdeen, Brighton and Cambridge, all seeing property values rise by more than 3.5 percent during the fourth quarter, and total returns in excess of 5.0 percent.

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.

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

This improving picture was reinforced by rental growth, at 0.5 percent across all sectors during the fourth quarter, and 0.2 percent for assets outside London, their first quarterly increase since September 2008.

At the sector level, offices produced the strongest total return of 5.8 percent, principally driven by investor demand, while occupier markets also began to recover towards the end of the year – both in and out of London. Capital values rose by 4.4 percent in Q4, supported by rental value growth of 1.3 percent.

Industrial units around the UK also saw a strong surge in performance towards the end of the year, with values rising by 3.9 percent and rents by 0.6 percent, leading to a total return of 5.6 percent. Performance in the retail sector was more subdued, with occupier demand, particularly outside London, more fragile.

Retail returns in the fourth quarter averaged 3.3 percent for the sector as a whole – trailing those for office and industrial markets. Property values still however rose for the sector in Q4, by 1.9 percent, with almost all regions and types of retail seeing capital growth, again buoyed by increasing investor demand.

Tags: Investment | Business | Real-estate Investment | Real-estate | United Kingdom | Retail | Expats | Europe |


News Archive