Positive rental growth is expected in towns and cities across the UK over the next five years as wealth spreads from the capital.

■ The prime yields in every single sector remained stable this month, the first time that this has happened since January 2014. While we believe that there is still downward pressure on high street retail and provincial office yields, it is clear that the market may well be signalling that the yield cycle may be close to its bottom.

■ On a pure cyclical analysis this may well be a rational thought process. As Graph 1 shows, the majority of prime yields are well below their long-term average, with two sectors now at record lows.

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■ However, when considering the future path of prime yields we must look beyond the historic trend. With the IPD All Property index showing an annual total return of 19.67% to the end of September, it is very likely that institutional weightings towards property will at least be maintained in 2015, and may even be increased.

■ While we are forecasting that the All Property total return will be lower in 2015, at around 12%, this still represents a very healthy performance for property compared to cash, sovereign bonds, and corporate bonds. Indeed, the recent volatility in the equity market will probably mean that once again commercial property is seen by many fund managers and investors as the least worst asset class.

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■ We expect to see more focus on rental growth and income return prospects in 2015, though there will still be some opportunities in secondary locations and assets to ride the closing of the yield gap to a more normal level with prime.

■ Rental growth is undoubtedly becoming easier to find, with our latest forecasts showing that the majority of towns and cities will deliver positive rental growth over the next five years. In particular the growth story is now spreading to key towns outside London and the South East.

Taken from
Market in Minutes: UK Commercial November 2014