• The UK average prime yield moved lower by seven basis points during July to 4.77%, a level not seen since August 2007. Downward trend arrows were applied to a couple of markets during June and these have now resulted in a 25 basis point hardening.

• In total, the past 12 months has seen a softening of the yield in just one sector, foodstores. In comparison, there have been 30 instances of yields falling by 25 basis points. Three sectors, retail warehouse (open A1), distribution warehouses and multi-let industrials have fallen by a full percentage point over the year. There is an expectation of further falls in some sectors as downward trend arrows have been applied, or remain, on six of the 13 sectors in Table 1.

Click Table 1 below to enlarge

• The UK Investment Managers Association (IMA) data of total retail and institutional sales show a net increase of £1.56 billion in Q2, a level last seen in Q2 2007 (Graph 1). The IMA data for May presented property as the highest net change of any asset class. This inflow is the response to improved capital value growth and the return of rental growth.

Click Graph 1 below to enlarge

• The regional markets will come to the fore to absorb the inflow into the property funds. The clear message for investors is that the markets outside of London will show significant returns and catch-up with the recent outperformance of London and the South East. The shift is vital to achieve outperformance in the UK.

• Some property investors have assets where the value is at a point to take profits, perhaps earlier than they had anticipated. We expect some portfolio 'weeding' during the remainder of summer and into the autumn, which will bring much needed stock to the market and will capitalise on the level of demand from investors.

Taken from
Market in Minutes: UK Commercial August 2014