UK commercial property market rebound could be slowed by new government

Written by Ray Clancy

Monday, 12 April 2010 12:30

The uncertain political landscape may slow the UK’s commercial property rebound unless the new government quickly addresses investors’ tax and budget deficit worries, it is claimed.

Investors became slightly more cautious about commercial property last month in the wake of a pre-election Budget that underlined the vast economic challenges ahead, according to analysts at Cushman & Wakefield.

‘The primary investor concern is probably now the approaching election but not perhaps just because of uncertainty as to who may be in power but more due to the fact that necessary decisions are being delayed,’ said David Hutchings, C&W’s research head.

‘The sooner we know where the spending axe will fall and what taxes will rise, the sooner occupiers and investors can plan accordingly and get on with securing the recovery for their businesses,’ he explained.

While investor sentiment towards prime property remains optimistic, C&W said secondary property yields remained high or were even increasing as investors faced up to the stark differences in supply and demand for prime and secondary assets.

A property yield is the annual rental income generated by a building expressed as a percentage of its market value. Broadly speaking, the lower the yield, the higher the price a buyer has to pay to obtain the income stream provided by that asset.

Prime property yields fell five basis points in March to an average of 5.85%, the lowest since May 2008, C&W said. Yields have now fallen 153 basis points since the market hit its low one year ago, but are still 142 basis points higher than yields recorded at the market peak in 2007.

Yields in 17 of the 25 property sectors monitored are now judged to be steady, providing the most stable picture since August last year, but stubborn weaknesses in the occupational market continue to spook some investors, C&W said.

‘We have noticed slightly slowing volumes as an element of caution is employed by some investors concerned about UK economic benchmarks. Certainly some of the UK retail funds are taking a more discerning view but they are still happy to pay keen prices for good stock but now content to come second on stock which doesn't quite fit their specific criteria,’ said David Erwin, head of C&W capital markets UK.