Average prime commercial property yields rose to 4.69% in April 2016, up from 4.62% last month; the largest upward movement since June 2010, according to Savills latest Commercial Market in Minutes report. Average prime yields are now at their highest level since July 2015.

Whilst this movement is small, Savills says that it is significant as it is most likely due to a mix of investors broadly accepting that total returns on UK property are likely to be lower in 2016 and some pre-referendum uncertainty. Savills forecasts that total returns in 2016 will be approximately 7.5%; comparatively high compared to most asset classes, but lower than the average returns of 13% seen in 2015.

As investors focus on income rather than capital growth, annual rental growth on commercial property continues to improve. Steady occupier demand combined with restrained supply is delivering rental increases across all the main commercial property sectors with growth no longer confined to London and the south east. Across the UK, standard UK office rents have risen by an average of 8.55% across the UK, industrial rents by 4.95% and retail rents by 1.5%.

Mat Oakley, director of commercial research at Savills, says:
“The UK remains one of the strongest performing developed economies with its GDP and consumer spending forecast to grow by two per cent this year. This positive economic backdrop is set to continue to support steady occupier demand, so, with supply generally unlikely to loosen in most regions, we should therefore continue to see consistent rental growth. Total returns may be lower this year, but commercial property is still a strong performer, particularly when compared to other assets, and it remains a favourite with investors.”

Read Savills full April 2016 Commercial Market in Minutes here. 

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