UK property investment experienced record growth last quarter in
the clearest sign yet that the sector's downturn is over, research
published today by national commercial property consultant, Lambert
Smith Hampton (LSH), has revealed.
LSH's quarterly survey of UK property investment identified that
the market's key indicator - transaction yields - improved in the
quarter September to December 2009. The 61 basis point movement, to
reflect an all property transaction yield of 6.99 percent, was the
largest shift since their survey began in January 2000.
LSH chief executive, Ezra Nahome, said: "Property returns are
almost four percent above the return on ten-year gilts. As a result
there is an overriding perception that property is good value.
"The improved sentiment, coupled with an increasing flow of
funds, saw institutional buyers strongly return to the property
market in the last quarter of 2009, purchasing £2.8bn worth
of property and selling £2.5bn, leading to net investment of
£320 million."
Following a slow first half to the year, total investment
activity of £24.6bn was recorded for 2009, only marginally
down on the previous year's figure. While this is the lowest annual
value of investment market activity since 2001, the market staged a
significant recovery in the second half of the year with
transactions to the value of £14.7bn.
Regional overview
LSH's research identified that the UK's north east and east
regions experienced the biggest increase in sales activity, with a
jump of 70 percent and 60 percent respectively. In contrast,
Greater London and south east activity fell 4.6 percent and 10
percent respectively.
Ian Leather, Head of LSH's Northampton office, said:
"Northampton and the East Midlands is witnessing continued
investment activity as investors compete for limited stock, and
with property returns performing well against other investment
opportunities, property is still seen as the investment of choice
for many. A significant percentage of the investor appetite appears
to be restricted to prime buildings let to blue chip covenants and
yields are being pushed down by the influx of money into the UK
competing with UK Institutions. We will see this increasing through
2010 as the development pipeline remains limited."
Meanwhile, the survey revealed that the largest sector
improvements were experienced in the industrial and retail
markets.
Ezra said: "Retail was heavily favoured by institutional
investors, with 56% of their final quarter purchases targeting the
sector. This follows the historic pattern of retail
investment and yields being the first to recover in an upswing in
the market."
According to LSH, the strong market surge has divided opinion in
the property investment market, with many professionals feeling the
rally is 'too much too soon', particularly as occupational demand
remains weak and rental values continue to fall.
Ezra said: "There are still considerable risks in the market and
this latest improvement is more of a correction than the first
steps to recovery. This latest adjustment is bringing the market
back to some level of normality, where prices reflect the
underlying prospects.
"Property yields are standing at 6.99 percent, almost three
percent above the 10-year gilt yield. Investment in property,
on this basis, makes sense, even when rental growth is under
pressure."
Looking ahead, LSH expects the first half of 2010 to see a
continuation of the existing buoyant trend, which started in the
middle of last year. However, the firm warns that there is a risk
of the market stalling after the national election as a 'new' sense
of reality sets in.
"The next 12 months remain uncertain for UK property but at LSH
our views would support the bulls in the market. Yields and
investment returns will improve as the market continues to correct
itself from the most significant financial shock in modern times,"
Ezra said.