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UK commercial property to continue to outperform other asset classes

May 2015

UK commercial property returns continue to remain attractive in comparison to other asset classes as average prime yields stay stable for the third consecutive month at 4.59%, according to research by international real estate advisor Savills.

Savills Market in Minutes report found that the average total return on UK commercial property stands at 18.63% to the end of February Q1 of 2015, in stark contrast to oil, copper and gold, which offer returns of -42.57%, -16.4% and -8.9% respectively. The firm predicts that due to the strong level of demand property should continue to outperform many other asset classes this year.

The report suggests that against this backdrop of stability, a split between property asset classes is set to emerge over the next three months. At present, in the office market the gap between prime regional yields at 5% and prime city of London yields at 4.25% is historically narrow. Still, it is likely that central London office yields will harden in the near future, primarily due to the weight of money that is targeted at larger office lots in the UK, something that is easier to find in the city in comparison to elsewhere.

Savills finds that when compared to non-real estate investment, commercial property is showing lower volatility, with returns outperforming equities, bonds and commodities. Furthermore, the possible threat of further deflation, which will result in rates reaching record lows, is likely to further boost the rationale for investing in property.