Commercial Property News

UK commercial property returns are set to decline by 17% in 2006 and by 9% in 2007, according to forecasts released by the Royal Institution of Chartered Surveyors. A rise in public investment and in demand from institutional investors over the next two years is expected to be offset by a drop in foreign investment demand as the cost of funding increases, RICS asid.

Foreign-based investment in UK commercial property is likely to come under pressure as the cost of financing rises in the US, the euro zone and Japan, RICS said. It added that UK 10-year gilt yields have risen by a quarter of a percent in the past month despite the Bank of England keeping its main repo rate unchanged. This will raise borrowing costs for real estate investors and cool demand, it said.

The outlook for rental growth over the next two years is more positive, however, with a continued recovery in the office rental market but softer growth in retailing and industrial rents. Rental growth in the office sector is expected to reach 5.4% by the fourth quarter of 2007, while growth in the retail market is forecast to halve to 2%. Rents for the industrial sector, however, are expected to fall by 0.5%, RICS said.