Sanjay Kapila, Senior Analyst with Knight Frank says: 'As in 2000, UK commercial property has the potential to be the best performing asset class in 2001. Unlike the current rollercoaster ride that is the UK equity market, a climate of solid and steady returns from commercial property should be viewed as an attractive feature for sustained property investment.'

Last year represented the best year ever for net investment in commercial property with UK institutions committing £6.1 billion ($8.7 billion). This beat 1998's record of £4.8 billion ($6.9 billion)and was more than double the amount invested in 1999.

But Kapila said that for the rest of this year property would face fierce competition to secure an increased weighting in institutional portfolios at the expense of the other main asset classes.

The slowdown in the service sector economy has already resulted in weaker office performance during the start of 2001. However, there is still a severe supply/demand imbalance in all of the UK's major regional office centres and an acute shortage of top quality office space in London.

The retail property market has continued to suffer difficult trading conditions, with capital values contining to fall. But in the industrial sector there is still a substantial weight of money, primarily from UK institutions, chasing limited product across the regions.

Kapila concludes: 'There can be no doubt that certain property sub-markets are likely to be affected by an economic slowdown more so than others. Nevertheless, investor sentiment, overall, remains positive over the medium term, when considered against the availability of debt finance and relatively strong market fundamentals.'

Instant Insights /

UK Commercial Property Set to Ride out Economic Downturn

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