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''Best Returns'' in UK Offices

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''Best Returns'' in UK Offices

By - Friday 04 May 2012

The office sector in the UK was the best performing commercial property market in the first quarter of 2012, recording an average return of 0.9 per cent during this period. Industrial real estate delivered 0.8 per cent, while retail provided investors with 0.3 per cent over the three months. In its UK Property Index, Jones Lang LaSalle noted overall commercial property returns were down to 0.7 per cent between January and March, significantly lower than the 1.4 per cent recorded in the final quarter of 2011.

According to the organisation, a reduction in capital values was partly responsible for the lower returns, with income the primary driver of growth for investors. Rents were up by 0.2 per cent for commercial real estate assets over the quarter, with the office sector once again leading the way, experiencing rental growth of 0.9 per cent during this period. However, research conducted by Jones Lang LaSalle into the state of the office market has revealed investors need to be wary of old buildings that cannot keep up with new legislation relating to sustainability.

Bill Page, head of Europe, the Middle East and Africa offices research, explained a significant proportion of office stock on the continent is more than two decades old. He pointed out 22 per cent of all office buildings in the UK were constructed before the 1960s, which means it is important for potential investors to consider whether refurbishment is necessary and how much this is likely to cost before putting any money into a deal. In some cases, this expense may be included in the pricing of an office complex. Mr Page added the rate at which offices are being replaced is very low, which means a "greater strain is placed on investors and occupiers to future-proof current assets and safeguard rental income, reduce voids and attract companies willing to take space in the building".

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