Growth in rental values will drive commercial property returns in the West Midlands in 2016, rather than yield compression, following a period of activity in 2015 when some market leading prices were paid for commercial property investments, according to a leading Birmingham real estate asset management specialist.
Tim Matthews, Chief Executive of Blue Marble Asset Management, says rental growth in central Birmingham and out of town offices, and in the industrial market across the region, will be the focus for serious commercial property investors in 2016.
Mr Matthews says: “A key factor in the UK investment market in 2015 was rental growth for all UK property of 4%*, the first time this has recovered to match pre-recession levels of 4.1% growth in 2007. Growth is expected to continue at similar levels in 2016.
“In the West Midlands, demand for office space in the city centre and in the M42 business parks will be ahead of the five and ten year averages, pushing prime headline rents in the city centre up to £32 – £33psf**, while we may see some speculative out of town development, as headline rents here rise to a new high of £23.50psf.
“However this does not mean we are in for another year of frantic activity like 2015, with investors seemingly desperate to pay whatever it took to get hold of investment property, resulting in strong yield compression, such as the 4.3% yield on DTZ Investors’ acquisition of Horton’s Innovation Square only last month (January 2016).
“In one five month period last year, the market was more reminiscent of a Black Friday sale with freehold properties snapped up at some very steamy prices. Thankfully 2016 should see investors becoming more concerned about yields, with a greater focus on market sectors and areas where rental growth will continue.
“These market conditions will allow asset managers who invest carefully and strategically on behalf of clients, such as Blue Marble Asset Management, once again to secure off-market deals which deliver long term value.”
Blue Marble Asset Management presently has more than £60 million of property assets under management. It works for a select range of clients including investment businesses, high net worth individuals, trusts and family offices. Its business is based on taking a holistic view of each of its property investments.