Property net yields on transactions rise - commercial mortgages

29 January 2007

For the first time in three years, the average net initial yield on property transactions rose during the fourth quarter of 2006, according to a new report by property services firm.

A study by Lambert Smith Hampton found that the average yield on property transactions reached five per cent - a trend the firm attributes to many investors, including those with commercial mortgages, responding to higher interest rates.

Ezra Nahome, national head of investment at the company, says that the rising cost of borrowing has prompted a number of potential buyers to re-consider their investments, while increasing property yields means that the market may seem "expensive" to some.

"However, there is still a strong demand for property amongst investors, particularly for London and where the play is for rental growth and asset management opportunities," he added.

Data complied by the firm and Property Data shows that while office yields continued at 5.25 per cent, yields within the industrial and retail sectors rose to 6.1 per cent and 4.7 per cent respectively.

According to Clerical Medical, commercial property has been the "best performing" asset class over the past decade.