This matrix provides detailed analysis of yield profiles across the market – ensuring you can make an informed decision about your investment activity.
Summary market update
We have started to see the emergence of some new trends in the market over the past quarter:
Demand is moving away from multi-let industrial estates towards single let sheds on long leases. A unit of good quality specification let to a strong quality tenant on a long lease might be expected to achieve a yield of circa 5%. For example, Aviva Investors recently forward funded a John Lewis shed let on a 30 year lease with index-linked reviews at a yield of 4.9%. In contrast the identical unit let to John Lewis on a 15 year lease would be expected to achieve a yield of circa 6%.
Growing demand for South East regional offices
The market for South East regional offices is growing and demand is particularly pronounced for brand new or refurbished units. This has resulted in yields ‘hardening’ as the supply of good quality offices is restricted. Demand is also being seen for older offices which can be refurbished to Grade A specification accommodation, particularly those with good car parking ratios. Properties with 10-15 year leases can expect to achieve yields of circa 6%.
Institutions acquiring smaller lot sizes
Demand for smaller lot sizes from institutions is on the increase. In the past the institutional funds have concentrated their acquisition programmes on the larger £10m plus lot sizes, while smaller sized lots would be of interest to private investors and small firms.
However, there is now a trend for these funds to acquire a number of smaller lot sizes to create a portfolio as the weight of money chasing good quality larger value properties is limiting opportunities for the institutions. Good quality £5m lot sizes let to reasonable covenants on mid length leases can expect to achieve yields of circa 7-8%.
Credit conditions and availability of debt starting to ease
Credit conditions and the availability of debt is starting to ease with a number of major lenders seeking to increase their lending this year. In addition, a number of new lenders have entered the market. Funding for speculative schemes still remains extremely difficult to obtain.
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