Retail in central London regarded as best current property investment sector, survey shows

Property in the UK is still regarded as a good investment with retail and central London seen as the most favoured sectors, according to the 17th Colliers International Real Estate Capital Pricing Survey.

The survey, which analyses the pricing of the different property sectors for both prime and secondary product, found that retail is the most favoured asset by 64% of respondents, followed by offices at 43% and industrial at 36%.

For purchases, Central London was the favoured region with 50% of respondents for retail and 43% for offices, followed by South East retail at 50% and South East offices at 29%, South West retail at 36% and West Midlands and Scotland retail at 29%.

Selling was more focused on the north. Offices in Wales and the North West by 29% of respondents, with retail sales focused on Wales, the North East, the North West, Scotland and Yorkshire and The Humber, each by 29% of respondents.

The report, which includes an analysis undertaken on yield levels, breaking down the capital and rental growth expectations and their relationship to total returns., found that return expectations have moderated with the 2011 total return revised down to 5.4% per annum compared with 5.8% per annum in November 2010. The 2012 total return was revised down to 8.2% per annum from 9.2% per annum in the November 2010 survey.

Prime yields rose by 20 bps on average, whereas secondary yields have slightly compressed, on average by 10 bps since the November 2010 survey. While prime offices and retail warehouses were under priced as there was some momentum in these sectors. Shopping centres were fair value.

Secondary offices, retail warehouses, shopping centres and industrials were under priced and these sectors provide opportunities, the report points out.

However, rental growth expectations for 2011 remained negative, except for the office and retail warehouse sectors. But 2012 rental growth forecasts moved into positive territory across all sectors.

Capital growth forecasts for 2011 remained negative across all sectors except for offices. 2012 capital growth forecasts remained positive except for business parks.

The survey also found that 79% of respondents stated that property’s yield and relatively high income return was a main attractor for investors while 50% of respondents said that their property investment risk appetite had not changed.

The rise in 10 year UK government gilt rates was seen as a downside risk for property by 71% of respondents while 43% of respondents said they would not invest in a real estate debt fund.

The Colliers International and Real Estate Capital Pricing Survey collates views on property investment compared to the other asset classes as well as on various topical property related issues. The survey is unique as it analyses the views across the entire property investment community to provide a short term detailed market analysis of the industry’s expectations for capital and rental growth.