Explaining, Ezra Nahome, CEO and Head of Capital Markets at LSH, said: "The improved economic outlook means investors can now see a greater upside: yield compression and rental growth are pushing up capital values and total returns to the highest level seen in years.
Total returns the highest level seen in years
"The across the board increase in demand for investment-grade commercial property is driving widespread capital growth. And the improved outlook for the occupier markets means rental growth is now a genuine prospect for the better-placed markets.
Total investment in 2014 will breach £40bn
"This will have the twin-effect of pushing returns up towards the low teens for the first time since 2010 and increasing investment volumes. Total investment in 2014 will breach the £40bn mark for the first time since 2007."
Ezra added: "The regional property markets, especially those in the South East and in regional cities like Manchester and Edinburgh, are becoming increasingly competitive, with 10 or 15 buyers chasing assets that would have had just two or three bidders 12 months ago. Even though this is pushing up prices, investors are pricing in future rental growth and are confident they can add value through asset management and / or refurbishment and redevelopment."
Investors opening up to the private-rented sector
LSH tracks the commercial property investment market through its quarterly UK Investment Transactions report. The latest results have shown property investors are not only widening their net in geographical terms, they are also opening up to other sectors of the market, the private-rented sector (PRS), being one of the main areas of opportunity.
A number of large PRS funds expected in 2014
Ezra commented: "For a long time the market has anticipated the major institutional investors will move into the PRS, but 2014 will be the year when this becomes reality. There remain barriers to the market, in terms of scale and access to the right kind of stock, but investors are looking to capitalise on the ongoing structural changes in the rental market. We expect a number of large PRS funds will be established by well known institutions during the course of the year."
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