Prime yields of commercial property in the UK 2022, by property type

The prime yields of commercial real estate in the United Kingdom (UK) were the lowest in the industrial multi-let, distribution, and London West End offices markets at 3.25 percent, respectively, as of May 2022. In contrast, shopping centers stood at 7.5 percent. Yield is an indicator for the expected return of a property investment and is calculated as the ratio of rental income and the property value. Several factors can drive yields - increased demand could raise property values causing lower yields, while a fall in demand could create the opposite effect.

Which is the largest commercial real estate sector in the UK?

Office real estate has traditionally accounted for the lion’s share of the commercial property investment market, but since the start of the coronavirus (COVID-19) pandemic, investors’ interest has been switching towards industrial real estate. With the eCommerce sector growing and supply chain management becoming more important than ever, so has the industrial and logistic sector. This increase in importance is also reflected in the occupiers market, with the annual take-up exceeding the ten-year average for three years in a row.

How is the commercial property market expected to develop in the coming years?

The industrial and logistic property market is forecasted to continue growing and outperform other commercial real estate sectors, such as office, and retail. According to the same forecast, rents will follow a similar trend and maintain a moderate growth rate for industrial property until 2025, while office and retail continue falling behind.