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Private investors’ commercial property investment up 14%

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Direct commercial property investments by individuals jumped 14% from £5.8bn to £6.6bn in 2013, according to the most recent government figures available.

In the first significant increase in activity in the commercial property market since the recession, City law firm RPC said the search for yield has driven more individuals to invest in commercial property, as private investors continue to suffer from negative real yields on government bonds.

RPC said that the IPD UK Annual Property Index shows that in 2014, the total returns on UK commercial property averaged 19%, leading more private investors to increase their exposure to the market.

The increased availability of bank lending to fund commercial property purchases has also driven inflows from private investors, with lenders more open to higher loan to value ratios than in recent years.

RPC said this resulted in renewed interest in commercial property, not just from traditional investors in the market, such as insurance companies, pension funds and ultra high net worth individuals, but also from a broader range of smaller private investors.

Martin Barrett, head of real estate at RPC, said: “The upturn in demand in the office market, both in and out of London, will have attracted the attention of private investors, although strong inflows from overseas have put pressure on yields in the capital. The yields on offer in other major cities like Manchester and Birmingham tend to be more attractive.”

“Prime London commercial property will always hold appeal for high net worth individuals, thanks to the occupancy rates, the large lot sizes on offer and the liquidity of the market. Now cities that may have taken longer to see demand return after the credit crunch, like Newcastle, Nottingham and Sheffield, may well start to see increased investment interest too.”​

RPC added the overall level of investment into the UK commercial property market rose 16% in 2013, from £73.9bn in 2012 to £85.9bn.

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