Another Recovering Property Market

The UK property market is not the only one that is recovering.

The UK residential property market is showing signs of recovery (if you are a house builder) or signs of a bubble forming (if you are a nervous economist looking at London prices). Either way, according to Nationwide UK house prices were up 5.0% year on year in September against 2.7% for the Consumer Prices Index.

The UK commercial property market is also on the mend, with London again outperforming the regions. According to Investment Property Databank (IPD), in August monthly UK commercial property returns reached a 29 month high, as the improvements in the wider economy started to make themselves felt in the real estate sector.

The values of retail property – shops and retail warehouses – rose over the month. Retail has been the hardest hit of the main commercial property sectors and the August increase, albeit only 0.1%, marked the end of a 21 month decline which had seen a cumulative fall in values of over 7%. However, rents in the retail sector continued to fall, against the trend in the office and industrial markets.

Interest in commercial property investment is growing as the market recovers. In July, property was the fifth most popular sector for private investors (based on net retail sales) according to the Investment Management Association (IMA). A major appeal of UK commercial property is the rental yield available, which as IPD notes often exceeds 8% in the regions outside London. Indeed, in 2012 it was rental income which kept overall commercial property returns in positive territory, more than countering the fall in capital values. With that capital loss drag now fading, the full benefit of the high yields are coming through – hence the greater investor attention being shown now.