Cluttons predicts 3rd April 2014

Double digit total returns for all sectors are expected during 2014 with the anticipated 6% rise in all UK commercial property values reflective of a strengthening overall occupier base, according to Cluttons.

Following last year’s six year record high, the central London investment market continues to speed ahead, with international interest driving up values and compressing yields further. With little sign of investor interest diminishing and desire for risk improving overall total returns for 2014 are expected to stretch to 14% for offices, which continue to outperform the retail and industrial sectors.

The turnaround in the occupier market, where two thirds of small firms are expecting to expand within the next year, is expected to strengthen rental values in the near term. The upturn is now evident across the strongest South Eastern locations where we are forecasting limited construction and a dwindling supply of well-located stock to drive further rental growth of 4% during 2014. This will increase demand for well-placed secondary offices within easy reach of the M25, often sold above the asking price as competition intensifies.

John Barrett, head of UK valuations at Cluttons, said: “Sentiment across the market continues to strengthen, with the increase in rental values reverberating further outside of London. The dwindling supply of South East office stock is likely to drive rental growth 4% this year which is already being factored into investor pricing, further compressing yields for well-located secondary stock. With economic confidence returning, we are now expecting more robust and confident business activity to translate into substantive rental growth.”