We could have expected that a slow reduction in the Bank of England base rate might return some increased energy to the investment market but it seems that despite the rate cuts yields have remained largely unchanged and investors still have the same target rates of return in mind when assessing available opportunities as they may have done when rates were higher.
That’s not to say that there is no activity in the investment sector – the lack of available properties coming to the market is ensuring that when an opportunity comes to the market there is good interest. As ever, investors are inclined to pay the best prices for property in the best performing sectors – so industrial and warehouse property remains the most popular, offices can be a mixed bag where the quality of the building, length of leases and strength of tenant are all really important while retail is even more dependent on these key features as well as with an eye on what opportunities exist to extract more value – converting upper parts to residential being an obvious target.
Following on from these comments industrial yields for the best modern lots remain in the 6.5% to 7.5% range; offices can vary much more widely depending on the various factors but typically for our South West market towns anywhere from 7.5% to 12% returns can be expected; retail is equally difficult to summarise as the range of yields can be anywhere from similar levels to industrial for well let opportunities, say 6.5% to 7%, moving out to 10% plus for more run of the mill retail stock.
Summary
Property remains sought after by investors but base rate reductions by the Bank of England haven’t impacted on yields being sought in our experience. The lack of stock is notable as many investors are hanging on to their buildings and not tempted to sell. The impact of decreasing interest rates could begin to have an effect on investors in coming months if they’ve been enjoying better than average rates of return on money in savings – and those savings rates start coming down linked to the base rate. The impact of this could lead to more purchasers coming into the market and adding to the competition for the limited stock that is available.
