SWIP upbeat about long-term outlook
Fund manager Scottish Widows Investment Partnership (SWIP) says that the prospects for the UK commercial property market remain “encouraging” for the long term. Its latest research, covering the outlook for the next five years, includes a forecast of an 8.5% total return per year and the prediction that commercial property investments are set to outperform equities and bonds over this period.
Dr Ed Trevillion, head of property research at SWIP, says there has been an improving trend during the first half of 2010 as rents become less negative and the expectations for capital value growth become stronger.
“That said, returns in 2011 are forecast to remain weak for the UK commercial property market as the UK economy remains fragile and testing times continue in Europe. Against this economic backdrop, investors remain wary and activity has moderated over the first quarter this year,” he added.
But there are certainly bright pockets of activity – SWIP forecasts that Central London office space to let will see the most rapid rental growth, driven by lack of supply, which will drive total returns over the next 3-5 years.
The group believes that the market for office space overall will deliver total returns of 9.4% per year over the five-year forecast period, compared with returns of 8.6% per year from industrial property and 8.0% per year from retail premises.
The office market in central London has seen a fall in vacancy rates during the first quarter of 2010, but occupier requirements also fell during the quarter, adding to concerns about take-up rates in future.
Dr Trevillion added: “Although concerns remain over the shorter term for investors in the UK commercial property market, property remains attractive relative to other asset classes. Property investment is a long-term game and its diversification attributes and ability to offer investors attractive yields remain encouraging reasons for any investor to consider the asset class as part of a balanced portfolio.”
