Following Redwood Consulting’s appointment by M&G Real Estate to provide media relations support to its corporate communications team, the team recently publicised the leading global fund manager’s research on the UK commercial property market. The research forms part of Redwood’s strategy to position M&G Real Estate as a thought leader in the real estate market. We successfully secured coverage in tier one media as well as investment and property trade media, including City AM, IP Real Estate, Property Week, Estates Gazette and CoStar.

The research found that the UK commercial property market may achieve returns of over 20% for the year 2014, making it the strongest return the country has seen in the last quarter century. With liquidity in the market and increased investor confidence, performance for the year is forecast to be exceptional although in the medium term M&G Real Estate’s research anticipates the market reverting to the trend level of between 6% and 8%.

‘The UK Real Estate Market Outlook – September 2014’ highlights that the heightened confidence in the UK’s economy, with growth ahead of its closest competitors the US and Canada, is triggering increased occupier demand – particularly in the office and industrial markets. This demand is resulting in lower vacancy rates and accelerating rental growth.

At a time of low supply of stock owing to previous constrained levels of construction, the UK property market is now attracting substantial interest from both UK and international investors. Rapid yield compression, aided by rental growth, has pushed average capital values up by 6.7% over the six months to August 2014, according to IPD.

Despite declining yields, investors’ risk appetite looks set to grow with property yields continuing to offer a sizeable spread above bond yields as shown in the chart below.

Notably, secondary offices in the South East are now outperforming prime assets, proving that prime is not always best. Throughout the rest of the country, secondary stock is catching up with prime assets as risk appetite increases.

A significant yield spread still exists between property and bonds

Graph