GVA Grimley - Property Overview - Commercial Investment Performance
GVA Grimley the specialist property adviser has published their latest economic and property market review for the first quarter of 2003, the report highlights the recent trends and forecasts for commercial investment performance. Their findings are outlined below:
Recent trends:
- Over the last six months the downward movement in yields, owing to the attraction of property as an investment compared with equities, has more than offset the slowdown in rental growth.
- All property returns have improved from 8.5% in June to 10.5% in December 2002.
- At the end of 2002, the all property return was similar to gilts but vastly superior to equities.
- Performance was strongest in the retail sector (14%) and weakest in the office sector (5.9%) at the end of 2002.
- The industrial sector was more stable, improving from 8.3% in 2001 to 10.1% in 2002.
- In uncertain times, property is seen as an attractive investment, due to its high initial yield and secure income stream.
Forecasts:
- GVA expect the reduction in yields to end in 2003, with yields at the end of the year the same as at the start. This coupled with zero rental growth (all-property) suggests returns will weaken to 7% in 2003.
- GVA predict from 2004 - 2007, gradually improving rental growth and a further slight reduction in yields should see higher returns, averaging 9.4% pa over the five year period.
- Office performance is expected to be weakest in the short term, but strongest over the five year period. Returns of 6% are expected this year compared with 12% in 2006 and 2007, averaging 10.1% pa.
- Over the five year period industrial is expected to be the best performing sector, with 9% in 2003, 11% in 2005 to 2007, averaging 10.3% pa.
- Retail, despite top performance in 2002, is expected to average 9.1% pa over the next five years.