The office sector in London's West End is consistently posting growth while much of the rest of the UK's commercial property sector stalls, according to the latest monthly index from IPD. The organisation revealed that rental and capital values for West End offices increased by 0.4 per cent and 0.5 per cent respectively in July, which is a marked contrast to City offices, where values fell by 0.6 per cent during the same period.
Overall, however, IPD noted returns on UK commercial property investments climbed to 0.2 per cent in July, while income return now stands at an average of 0.6 per cent. Phil Tily, managing director for IPD UK and Ireland, asserted: "Falling values, though difficult for a market struggling with financing, do mean higher income yields, if investors are prudent in their asset selection. Initial yields are now around 6.3 per cent across the UK, but they rise to over seven per cent for industrial assets, and over eight per cent for some of the regional office markets."
According to research published by Knight Frank at the end of last month, the prime office markets in Liverpool and Sheffield recorded the highest initial yields in the second quarter of this year, standing at 7.25 per cent in both cities. Meanwhile, Manchester experienced the most significant quarterly growth in prime yields, as they climbed from six per cent to 6.5 per cent between the first and second quarters of 2012. The organisation also pointed out that take-up of office space rebounded in regional markets between April and June, increasing by 32 per cent from the previous three-month period.
Last month, a Savills report into the state of the West End investment market highlighted the popularity of retail assets in the area, as well as offices. The firm predicted strong retail rental growth in the lead up to Crossrail's opening and pointed out the demand for this asset class from both domestic and international investors is helping to buoy the sector.