Downward pressure on prime yields is set to resume across six sectors of the UK commercial property market, according to Savills.
The Commercial Market in Minutes report said that despite more flexibility regarding location and quality, there is still a strong bias towards prime and a shortage of stock coming to market, leading to a downward pressure on yields.
It predicts prime yields to contract across M25 offices, provincial offices, high street retail, shopping centres, industrial distribution and industrial multi-let. Yields in the West End and City office markets, at 3% and 4.25% respectively, are expected to remain stable.
However, the report also said that capital growth is continuing to slow in the UK and investors will have to focus more on income returns and rental growth.
It said this is a clear indicator that the early phase of the recovery is now ending, with the annual rate of capital growth slowing from its peak of 13% in October 2014 to 11% for the year to May.
Mat Oakley, commercial research analyst at Savills, said: “Rental growth is no longer just a London story and an outward ripple of recovery suggests strong prospects for rental growth across an array of sectors and regions. The challenge for investors over the next five years will be finding the asset management and rental growth opportunities that will deliver the best returns.”
The report said that most of the top nine regional cities are already experiencing upward pressure on prime office rents due to a 10% rise in leasing activity and a 10% fall in availability over the past year.