Recent analysis of the UK commercial property market by Dr. Niall O’Connor, fund manager at Brooks Macdonald Group’s funds division, North Row Capital, may seem rather optimistic considering how poorly the market performed last year. According to the analysis, UK commercial property will return at least 5% this year despite total returns for UK commercial property being just 1.9% in 2016, with yields averaging 4.9%.

I start by asking Niall if that means that UK commercial property values fell by 3% in 2016. “Correct. Although it depends which index you use but the latest data now suggests a fall of just over 2%.”

According to CBRE, capital values fell 2.4% in 2016, hurt by changes to stamp duty tax and Britain’s vote to leave the European Union. Retail property capital values saw the largest fall, declining 5% from a year earlier, while offices dropped 2.5%, and industrial property prices rose by 1.5% compared with 2015. Rental values rose 1.7% on the year but remain below pre-Brexit vote levels, CBRE said, which estimated that the annual total return for UK commercial property investment last year was 2.7%.

Part of the reason Niall is more bullish on commercial property this year is because the ‘macro drivers have all improved’. But with such strong macro drivers, including a much weaker sterling and a falling base rate, why did prices fall last year? “It was entirely due to Brexit”, says Niall, adding, “prior to the EU referendum the UK commercial market was looking good. The UK had had a number of years of good GDP growth and unlike in the run up to the financial crisis when there was a lot of construction with debt, there had been less construction and a lot of cash transactions. Sterling was already quite weak before Brexit but has weakened further since then. Going forward this year we expect prices to be quite flat with a four and a bit percentage yield.”