Broad growth in commercial development activity – Savills
Savills’ Commercial Development Activity Index for February posted a net balance reading of +10.9%, up from +3.1% in January and the fastest rate of expansion in four months. Those surveyed said improved confidence in the economy, the launch of new projects and increased marketing were all expected to lead to further increases in activity over the next quarter: the three-month outlook reading rose to a net balance of +15.6%, the highest in almost three years.
The expansion was broadly based: activity on commercial projects increased in both the public (+1.4%) and private (+16.4%) sectors in February, as the public sector returned to growth, and the level of refurbishment activity accelerated to the joint fastest reading in almost six years with a net balance of +17.4%, Savills noted.
The firm has also noted that the average prime yield for UK commercial property hardened again in February, to 5.48%, the lowest level since November 2007. This followed a hardening of the prime yield for shopping centre properties to 5.00% from 5.25%. Rising investor confidence is combining with a scarcity of stock to drive up prices in some sectors, Savills says, with the downward shift in yields led by London offices, M25 offices and shopping centres. “This leaves regional offices and other parts of the retail market looking comparatively cheaper than they have been for some time,” the firm notes.
The hardening in prime yields has also added to the gap between prime, secondary and tertiary prices, Savills points out: it estimates that the prime/secondary gap has widened to 443 basis points, the widest since November 1993. As this gap continues to expand the firm expects to see the launch of more funds specialising in high-yielding secondary assets. As to when the gap might start to narrow, Savills says its best guess at present is “in the second half of 2014”.
