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Commercial property investors will benefit from benign conditions in 2011

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Commercial property is now looking relatively well valued compared to bonds, equities and residential property, according to Ed Stansfield, chief property economist/commentator with think tank Capital Economics.

Speaking at Faircroft Real Estate’s seminar, held for Family Offices and Pension Funds, Stansfield stated that while the UK’s economic recovery will remain sluggish, inflation worries will ease and the Bank of England base rate is likely to stay low, helping to create relatively benign conditions for the UK commercial property market.
 
There was a 44 per cent fall in UK commercial real estate values from 2007 to 2009, but the falls were followed by a 24 per cent rise since 2009.
 
“The spread between interest rates and the IPD (Investment Property Databank) All Property Yields Index is close to its ten year high, which means that commercial real estate has the ability to generate income today with potentially high returns on capital investment,” he said.

Stansfield also pointed out that a recent RICS survey had heralded a greater demand for commercial property space – another indication for a steady recovery in the medium to longer term for the asset class.
 
James Burchell, chief executive, Faircroft Real Estate, said prime yields in central London have fallen to similar levels seen before the financial crisis, while total returns rose by 23.9 per cent in the 12 months to August, 2010.
 
“UK Property yields have outperformed both the UK All Share index as well as gilts over the past three, five and ten years – the commercial property sector looks too attractive when compared to equities, gilts and bonds,” he said.

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