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UK still centre for investment as commercial property makes 66% gains

Commercial property investment in the UK saw a 66% increase in January compared to the same month in 2017, proving that investor interest in the country and the sector remains strong.

A total of £65.4bn was injected into the UK property market over the course of 2017, with the commercial space leading the way after the sector saw its investment volume rise by 66% this January from the previous January, according to the latest figures from Savills. Almost half of the investment volume came from overseas, with a fifth from the Far East, indicating that international investors are undeterred by the UK’s real estate market by Brexit.

Industrial property transactions totalled around £11bn, an 80% rise from the previous year, and this sector, in particular, is expected to prevail in terms of rental growth and yields in the year ahead, followed by retail sectors and offices.

Returns higher than expected

The Savills UK Commercial Property Market in Minutes report said: “Independent UK property forecasts, including those from the Investment Property Forum, suggest total returns between 4% and 5% in 2018. Based on our current projection, we think this looks too low. Annual rolling UK total returns are just above 11% as at the end of January 2018.”

Returns in the commercial property market specifically are expected to be around 7% for 2018, although Savills predicts this to decrease slightly in 2019 with the fallout from Brexit expected to create more caution among investors.

Steve Lang, director at Savills commercial research team, said: “This February marks the 10-year anniversary of the first Market in Minutes in 2008. Back then, average UK prime yields rose by over 120 basis points during the year, development activity indicators had slumped and GDP expectations were slashed. Compared to this, the impact of the Brexit vote is relatively mild.

“In addition, you would have been hard pushed in 2008 to have predicted the explosive growth in online shopping over the past decade which has largely driven occupier demand, and therefore investor appetite, for industrial space.”

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