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Commercial Property Outlook

Cluttons has just released its commercial property outlook for spring/summer 2016 and has reported that the market is cooling rapidly.

After total returns of 19.3% (2014) and 13.8% (2015), it now forecasts total returns to slow further to around 6.5% this year, a drop of more than 50% on last years' returns.

Cluttons says this drop is due to Stamp Duty changes in the last Budget and expects total returns for UK commercial property to hover around the 6.5% level every year between now and 2020. With most commercial property still yielding around 5.0%, this would imply that there will be very limited capital growth in commercial property prices over the next five years.

The report states: 'This market cooling is due to a number of factors. The slowdown in China and other developing economies is reducing world growth. Also, political uncertainty in the Middle East and global debt are adding to volatility, especially in emerging markets. UK GDP growth has slowed since mid-2015, and if the government's latest, reduced 2% target is not achieved our rental growth assumptions may be pared back. Outside Central London, rental growth remains patchy.

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