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The commercial property market is still struggling due to the difficulties in the economy, according to Jones Lang LaSalle.
Their latest forecast cites returns down at 2%, although office rentals in the West End should perform well. Elsewhere across the country will not experience the same though, with Jones Lang LaSalle expecting rental falls.
Head of Forecasting at Jones Lang LaSalle Andrew Burrell said; “Performance across sectors is expected to be mixed. High street shops will be weakest, with negative total returns of 3.3% this year. By contrast, London West End and City offices will out-perform in 2012, with total returns of 5.8% and 4.5% respectively. Meanwhile, the industrial sector is expected to show modest returns of 2.6%, with standard industrials outperforming distribution warehousing.
“Weak demand partly explains subdued returns. We have adjusted our forecasts and all-property rents are now expected to fall by -0.4% in 2012. Rental growth over the longer-term had also been toned down, averaging just 1.4% per annum over the next five years.”
Mark Jones, director in Jones Lang LaSalle’s Strategic Asset Management team, added: “The recovery in the retail sector is expected to lag other sectors, with further rental falls expected in 2012 before showing modest recovery from 2013 onwards. Retail warehouses are anticipated to perform better than standard shops and shopping centres, with rental growth averaging 2.7% per annum over the five-year period. A lack of debt finance and weak tenant demand are expected to lead to further downward pressure on rents outside of retail warehousing and Central London shops.”
Mark concluded: “We expect all property capital values to fall by -3.7% this year, given declining rents and rising yields. Equivalent yields will show further outward shift in 2012, given the challenges facing secondary markets. Yields will then remain broadly stable in 2013 before drifting upwards again in the last few years of the forecast to reflect the expected rise in interest rates and bond rates.”
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