Commercial Investment Market: Spring Briefing 2010

26 March 2010

A summary of the findings reported by Richard Higgins at the Spring Briefing 2010.

Richard Higgins, partner who heads up the commercial investment division, gave an overview to the Commercial Investment market at this year's Spring Briefing.

Here is a summary of the talk he gave at this event.

 Background

  • Start of year has seen continuation of the recovery in most sectors during Q3&Q4 2009.  Inward movement of over 1% in yields from the bottom of the market.
  • Momentum is continuing and slowly spreading out from central London
  • Market being driven by Institutions where allocations for property have increased due to 50% gain in FTSE in 2009.

  • Weight of both private and institutional money chasing limited amount of quality prime and good secondary stock resulting in competitive bidding riving up prices (and yields down).

The year ahead:

  • Continued improvement and stabilisation in market prices due to restricted stock and improved investor sentiment.
  • Specific markets as ever will demonstrate more local supply and demand characteristics.  There is a chance that the recovery in the South East of England will continue a pace but may stall during the middle of the year
  • The availability of affordable funding remains vital and with much of the traditional Scottish funders effectively out of the market at present, there is unlikely to be a drive in activity by highly geared purchasers.  New funders are entering the market with others taking the opportunity to gain market share and a foothold in the market place.
  • In Scotland, we forecast continuing shortage of investment stock for better quality opportunities, driving prices upwards albeit at a lower level to the south of England. 
  • There is a slight widening of the gap between prime and secondary investment property, reflecting the increased risk in the secondary sector.
  • Fragility of occupier markets is likely to be a key driver in risk assessment.  Traditionally occupier activity lags economic indicators.  If recent assessment of GDP growth of 0.3% in Q4 2009 is indeed the start of a long sustainable return to recovery and growth then we expect occupier demand to show signs of improvement towards the end of the year.  Much depends on the reaction of business and our international markets to the outcome of the general election.   Possibility that we could return to negative GDP growth in Q1 2010 due to effects of VAT increase and inflationary pressures of QE. Wait and see.

Current Yields

  Prime Secondary
Retail 5.5% to 6.0% 6.75%+
Offices 5.75% to 6.25% 7.5%+
Industrial 7.75% to 8.0% 8.5%+

If you would like to discuss any aspect of commercial property investment then contact Richard Higgins at our Edinburgh office.

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