Almost a third (30%) more respondents to a RICS UK commercial property market survey in January believe that industrial rents will rise in the next three months compared to those who do not. Meanwhile, they foresee marginal gains in the office market and a decline in retail. For Rogier Quirijns, manager of Cohen & Steers’ European Real Estate Securities Fund, the rental growth outlook for industrial property is extremely positive.
“We will see like-for-like rental growth of between 3% and 5%,” he says. “That is where the offices clearly differ. You might see a 4% yield, but you could argue that rents might go down, especially if we talk about a hard Brexit.”
STUDENT FINANCE
Another niche area of commercial property expected to generate rising income is housing the UK’s 1.7 million students. Universities are now businesses looking to attract paying customers and accommodation is part of the recruitment package.
Purpose-built student accommodation is an under supplied market with rising demand thanks to the UK’s world leading universities. Demand for this accomodation grew by 155% between 2007 and 2014, while Cushman & Wakefield’s research shows that there are 2.3 students per bed in the purpose-built market.
The sector is worth £42.3bn, Knight Frank says. Assets under construction point to the industry being worth £50bn by 2020. Investment yields in the direct let prime London market were 4.5% at the end of September 2016, according to Knight Frank.
In the direct prime regional market the figure was 5.5%. Average rents for direct let purpose built student housing increased by 2.9% for en-suite rooms in 2016 and by 2.4% for studios, according to Knight Frank.
London is a city that suffers from huge under supply with the London Plan suggesting that between 20,000 and 31,000 additional beds will be needed by 2025. Land costs, competition for available space and the community infrastructure levy are factors behind the lack of adequate supply in the capital.
