The UK Investment Property Databank (IPD) index, the property industry’s metric, shows that commercial property values have, on average, risen by over 9% since July 2009. However, while they are still 40% below their 2007 peak, their equivalent yield of 8.3% compares favourably to a 10 year gilt yield of 4.0%.
However, different parts of the market are moving at different speeds, and there remains concern that the wider market – particularly secondary stock not included as part of IPD universe – could take another year to 18 months to catch up with Mayfair and the City. As between different sub-sectors, the Expert Panel remains most optimistic about offices, with 48% expecting it to recover faster than retail, industrial and residential over the next 12 months.
The FTSE UK Property Index, which tracks quoted property stocks (both Reits and non-Reits) is up 93% from its low in March 2009, but still 65% below its peak at the start of 2007 and 30% below its level of September 2008, before the fall of Lehman Brothers. Some 48% of the Expert Panel now expect returns for Reits to be slightly worse than direct property over the next 12 months – up from 21% last September.
Expectations about how rental values will perform have improved, with 43% expecting them to recover more quickly than they did following the 1992 recession, up from 29% in the last survey.
Reflecting the burgeoning interest among retail investors, 95% of respondents agree that sentiment towards property has improved during the last quarter, but concern remains over how long secondary property will take to recover. Some 57% of the Expert Panel do not expect to see a contraction in secondary yields before 2011, up from 29% in the last survey.
With shop vacancies standing at around one in 10, and with secondary areas in the regions particularly badly hit across all sectors, many see the persistent uncertainty about the pace of business recovery and increased occupancy continuing to overshadow the upturn.
Peter Cosmetatos, director of Reita, said: "The most telling conclusion here is the lack of consensus from the panel over how quickly and to what extent the wider market may recover. The only economic certainty is that public spending will be severely cut by the next government and that people will have a lot less money to spend as a result. This will undoubtedly have an impact on business and on the take-up of commercial space. With that in mind we should tread very carefully when making any predictions over long-term market recovery this year."
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