Commercial property to see double digit returns in 2014, says BNP Paribas Real Estate
The commercial property market will continue to perform well in 2014, providing double-digit returns across all sectors, according to forecasts from BNP Paribas Real Estate.
Overall, the international property adviser is forecasting all property to return 12.6 per cent this year, relative to its outturn of 10.9 per cent in 2013 and a third year of double digits in 2015, but the market will slow towards the end of the five year period.
The international real estate adviser launched its research at its Spring Capitalise event for investors, in which BNP Paribas’ adviser to the chairman, Jean Lemierre (former president of the European Bank for Reconstruction and Development), also shared his economic outlook for the UK and European economies.
During the event, BNP Paribas Real Estate’s UK CEO John Slade said: “In our last Capitalise event in September 2013, we said that there would be growth in investment expenditure and with more than GBP21bn of investment transacted in the final quarter of the year (which is almost as much as was traded in the whole of 2008 and higher than any quarter in 2007), we were correct on our forecasts and we expect these trends to continue.”
In 2013, Central London attracted 44 per cent of total investment with overseas buyers representing 69 per cent of this, predominantly Far Eastern and Middle Eastern investors. Outside London, 25 per cent of investment came from abroad and mainly from more mature foreign sources such as Germany. Looking ahead, there is still a weight of money from overseas, for example the compulsory superannuation funds from countries such as Australia and Malaysia, the more mature players, such as the US private equity firms and Middle Eastern investors, and the new players, such as the Greeks and Russians.
Looking at the year ahead in further detail, BNP Paribas Real Estate predicts that the London market will continue to perform well, particularly City offices returning nearly 17 per cent. Other markets are expected to pick up this year; for example, South Eastern offices should perform marginally better than the West End returning 14.3 per cent and 14.2 per cent, respectively. Distribution warehouses will also be a top performing sector, returning nearly 15 per cent.
Slade says: “We believe the office sector will continue to be the main driver of rental performance, no longer pushed on solely by London, although undoubtedly the capital will still have an important role to play.”
BNP Paribas Real Estate’s UK head of research, Claire Higgins, says: “We expect the retail and industrial sectors to return 11.5 per cent and 13.5 per cent respectively this year, representing their peak in this cycle. Offices will still outperform both, returning around 14 per cent, but this will represent a small decline on last year as the rapid growth in Central London starts to ease and the rest of the country begins to catch up.”
In overall performance terms, industrial is predicted to be the best performing sector in terms of total returns on average across the five year period as a whole. Additional market leaders will be South East and regional offices.
“We expect Central London office yields to be pushed down to very low levels over the next couple of years, and consequently office returns will slow on average as London cools. In all, we expect all property to return an average of seven per cent per annum over the period to 2018,” Higgins adds.
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