17
November
2009
|
00:00
Europe/London

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.”




For further information the CBRE Research website