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Commercial property returns to fall by more than half this year

Cluttons’ Commercial Property Market Outlook predicts total returns for the UK commercial real estate sector will reach 6.5% in 2016, which is less than half the 13.8% return achieved in 2015 and a third of the 19.3% achieved in 2014.

Cluttons cite slowing GDP growth and Brexit fears for creating uncertainty in the commercial property investment market, which has consequently led to lower returns. Going forward, rental income growth and asset management initiatives should be the main performance drivers for the year ahead instead of yield compression.

Faisal Durrani, Cluttons head of research commented: “The UK commercial property investment landscape is being subjected to some challenging headwinds. Chief of these is of course the risk of a Brexit and the deteriorating global outlook. The uncertainty and nervousness being fuelled by the in-out EU referendum is impacting the value of sterling and the volume of property transactions. 

“If the UK were to vote to leave the EU, property values are likely to fall. Conversely, if the UK remains in the EU, there may be a rise in the value of sterling, which could make the UK look a lot more expensive than it is now to international investors.”

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