Yield potential

Alongside the opportunity for capital growth, rental demand and yields are strengthening.

The market received two big hits in the last few years – 9/11 and the conflict with Iraq. When the relocation/employment market contracted, tenants were able to renegotiate their rents which were over-inflated. The cost of borrowing for landlords had reduced by almost 40% from 2000 to 2003 whilst rents had continued to increase.

This led to unpalatable reductions over a short period, but the correction would have occurred over time.

As an intelligent investment market, the cost of buying has always shown a strong correlation, albeit with a time delay, with the levels of rents. The recent growth in capital values and interest rate rises, coupled with an expanding corporate tenant market, is now creating an upward adjustment.