Newspaper article The Journal (Newcastle, England)

North Mirrors 2% Rise in Value

Newspaper article The Journal (Newcastle, England)

North Mirrors 2% Rise in Value

Article excerpt

Byline: By Greg Davison

The demand from investors for commercial property hit unprecedented levels in 2005. DTZ's Greg Davison predicts the headlong rush into property showed no signs of abating in the first three months of 2006.

The value of UK property investment transactions monitored by DTZ Research during 2005 rose 2% to pounds 50.1bn, a trend which was mirrored in the North-East.

The North-East market, which accounted for approximately pounds 650m of commercial property transactions, saw strong transactional activity across the three main commercial sectors in 2005.

Across the UK, reported purchases were highest in the office sector (pounds 19.8bn), followed by retail (pounds 17.2bn) and industrial property (pounds 3.1bn).

Investor appetite for commercial property has remained strong and property yields have continued to harden during the first quarter of 2006.

This has put more downward pressure on rental yields for commercial property, represented by rent roll divided by the price a building sells for.

In the past three years rental yields from 7.25% in December 2002 to just over 5% at the end of 2005, indicating rising prices for commercial property while rents have stayed more or less static.

Investor demand for property is showing no signs of decline, and rental yields have fallen further for prime stock as demonstrated by the sale in late December of the Superdrug unit on Northumberland Street which achieved a 3.78% yield.

Despite the evidence of yield compression throughout all sectors of the market, there are still opportunities that will provide higher returns through active management and potential for rental growth.

The sale of Scotswood House on Newcastle Business Park earlier this year achieved 5.7% for a building with a 10-year lease with imminent rental uplift. …

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