'Busy Year' Forecast for U.K. Commercial Investment

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The U.K. commercial real estate investment market is poised for a 'busy year' as prime yields fell in January to the lowest level since 2007. 

Prime yields fell 3 basis points to 5.49 percent as demand continued to surpass supply and interest spread from prime to secondary, and from London to regional markets, according to Cushman & Wakefield. Debt markets also became cheaper and more competitive. 

"There is absolutely no doubt that a significant tranche of capital is still allocated for the UK - both for London and the regions - but the investors are largely all dressed up with nowhere to go," David Erwin, CEO of UK capital markets at Cushman & Wakefield, said in the report. "The lack of short-term stock is a little worrying and frustrating volume levels though we anticipate this will change as major mandates are launched at MIPIM and beyond.  It's going to be a busy year."

Demand is increasing in second tier markets more notably for office and industrial segments, resulting in downward yield pressures to reach their strongest since 2009. 

Most segments are witnessing low available stock, with only secondary industrial and high streets reporting an increase in stock entering the market. Interest for the prime retail sector is up, with significant demand for institutional lots higher than £10 million in the shops market for example, C&W reports. 

"As debt availability rises, there is an increasing diversity of lenders in the market as institutions and debt funds establish themselves as serious players," David Hutchings, head of EMEA investment strategy at Cushman & Wakefield, said in the report. "Competition to find opportunities is pushing lenders to take on more risk - both in terms of the assets they will lend on and the terms and scale of debt they will offer - and the underwriting skills of all lenders will be under scrutiny as this move back up the risk curve takes place."