Commercial property market shows signs of life

UK commercial investment activity rose 42 percent in June compared to May, up from £755m to £1.3bn, taking total volumes for H1 2020 to £15.6bn, according to the latest market update from Savills. With the all-sector prime commercial property yield remaining stable at 5.21 percent in June, Savills says that together this may signal some stability is now returning to the UK investment market.

According to the real estate advisor, another notable change is that there are signs that yields may harden on prime West End offices, industrial multi-let and distribution assets. This reflects a very typical turning point for the commercial property market, says Savills, with investor interest returning first to those sectors that are perceived as core.

James Gulliford, joint head of UK investment at Savills, comments: “There’s some evidence that we may have passed the nadir of this cycle in terms of investment volumes in May. This of course does not change the overall story of Q2 2020 being the weakest quarter on record for UK investment activity, and we estimate that volumes in the first half of 2020 were 43 percent below the five year average, but the hope is now that a corner has been turned.”

Mat Oakley, head of UK and European commercial research at Savills, adds: “The shape of the UK economic recovery is increasingly looking ‘tick-shaped’, starting with strong quarter-on-quarter growth in Q3 2020, though with 2021 not showing a recovery of the magnitude of the fall seen in 2020. While a revival in GDP growth is imminent, unemployment is not expected to return to 2019 levels at any point in the next five years. Although this isn’t essential, as many businesses were reporting recruitment difficulties due to such a tight labour market, high levels of unemployment will drag on consumer sentiment, boost precautionary saving and diminish retail spending.”