UK Property Returns to Positive
London – 18 November 2009 – Property values rose at an annualized rate of 16.2% in the three months to October according to latest CB Richard Ellis (CBRE) research. Total returns on an annualised basis were 26%. Property equivalent yields fell by 40 basis points, reversing the negative yield shift over the first half of 2009.
Peter Damesick, CBRE’s Head of UK Research, said: “These figures clearly indicate the remarkable speed of the turnround in property performance since the summer. Property now has a very good chance of delivering a positive total return in calendar year 2009, a dramatic improvement on expectations of only a few months ago.
“While the speed and strength of the rebound had exceeded earlier expectations, the positive momentum looked to have legs to carry it into 2010. There were a number of factors supporting the upturn in performance:
§ Initial yields on commercial property currently average 7.5% and are clearly attractive against current returns on cash and gilts.
§ More positive sentiment towards property is now evident across IFAs, pension funds, actuaries and retail investors – this is translating into higher allocations to property and renewed positive cash inflows to institutionally managed funds, who are actively looking to buy.
§ Additional investor demand is coming from a range of new fund launches.
§ The leading quoted property companies have restructured and recapitalised and are now back in acquisition mode.
§ The availability of good quality assets to buy remains limited, so strong demand is pushing up prices.
§ The threat of large-scale forced selling from bank foreclosures has not materialised. Banks are taking a measured, orderly approach to property loans and taking pains to avoid crystallising losses. Distressed selling is likely to remain limited.
§ In occupational markets, there are signs that the decline in rents is easing, with some markets looking close to rental stabilisation.
§ The early impact of the credit crisis in checking development activity means the market is not burdened by excess supply from over-building, as seen in the early 1990s downturn. Very low levels of new construction in the past eighteen months mean that a supply squeeze in new commercial space is a clear prospect by 2011.
“There is an expectation that stabilising rents and further yield compression will produce double digit returns for commercial property in 2010.”