Roller Coaster Investment Market

4 September 2006

Baker Davidson Thomas report significant strength in the investment market for commercial property, as a whole host of investors from institutions to property companies and wealthy private individuals, continue to seek "safety in bricks and mortar". The result has been what the profession has described as "yield compression", driving up property values, despite rental levels remaining fairly stagnant, particularly for offices.

Investment demand has outstripped supply, in some cases by as much as 10 to 1, at a consequence, investors have also been buying up stocks of short term income. For example, Baker Davidson Thomas, acting jointly with Lambert Smith Hampton, have recently sold Units 10 & 11 Plover House within Aviary Court on Wade Road, to a private investor. The sale price of £725,000 reflected a 7% yield on income despite both leases having only 4 years remaining.

However, some commentators are now beginning to report the first signs of nervousness in the investment sector; "the height of the market" arguably having been reached, and as prime yields have narrowed ever closer to the base rate for borrowing, it seems logical that investors will begin to turn their attentions elsewhere.

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