However, encouragingly, said Cluttons, the total value of investment deals recorded in the final quarter of 2008 was £4.4billion – the same as in the third quarter of 2008.
This stabilising in transactional volumes is supported in part by an increased number of investment inquiries from cash rich buyers who have begun to circle the sector on the look out for distressed sales, and a resurgent auction market where the major auction houses report some of their most successful sales for a long time.
Those with cash or borrowers with large deposits have been spurred on by falling interest rates. Savings returns are now all but negligible and many scent an opportunity in falling property prices. It is these poor interest rates that could well spark renewed activity in property and why Cluttons expects the All-Property return to be a positive 7% for 2010. In the meantime, only those in dire need of cash have been forced to sell at present. Those who can, prefer to hold on, ride out the storm and wait for things to improve. And they may be proved right. History reveals that in previous recessions those capable of weathering the storms ultimately benefited.
"While there is little point trying to gloss over the bad news," said Bill Siegle, head of commercial at Cluttons, "the market has been fortunate enough to have kept speculative development to a minimum. This should go some way to limiting the fallout seen in previous recessions."
Stymied by the Government’s Empty Property Rates, these fewer speculative developments and a general lack of construction per se, have the potential, when coupled with low interest rates and near zero returns on savings, to create pent-up demand for property. Only time will tell if this will be born out but the general consensus is that 2009 will be the nadir for the property industry with all sectors recovering in 2010.
However, even the most optimistic may take some convincing that any rebound will occur in 2010 when faced with an almost daily diet of negativity and the possibility that things may get worse before getting better. As things stand capital values have fallen, rents have weakened and yields widened with the All-Property Yield currently standing at 8.45%, its highest level since July 2002. With few occupiers expanding, demand for office space has been hit and this downward trend is set to continue throughout 2009 with office rents expected to fall by -16% in 2009 and by a further -12% in 2010 before beginning to recover. The City market is likely to be worst hit as the full impact of the banking crisis takes hold.
In the retail sector, the Government’s 2.5% reduction in VAT has done little to alleviate the overall pain being felt on the high street, although sales did recover in January with like-for-like sales up by 1.1% as shoppers took advantage of heavy discounting by retailers. Other reasonably positive retail surveys are unlikely to be enough to prevent the recent downward trend re-establishing itself in the spring. Better news for central London retail, which has been partly insulated by higher footfall from tourists taking advantage of favourable exchange rates, but elsewhere high-profile retail insolvencies have led to proliferating "To Let" signs on many high streets.
"These are without doubt the most challenging conditions any of us have ever seen," Siegle said. "One can only hope that as with previous recessions many of those displaced call upon their creative and innovative skills to start new businesses and restart the economy. When any recovery does come, and it will, we will all have a duty to aid that recovery. In the meantime the Government’s various stimuli may have begun to have an impact. Their much-vaunted stimulus for major building programmes may help kick-start the economy, otherwise for those unable to adapt to market conditions, sitting tight and riding out the storm maybe the only alternative."
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