Election jitters unsettle the investment market
9 Apr, 2010, UK
Investors grew slightly more cautious during March, with the Budget in particular focussing minds on what may lie ahead and the uncertainty of an election period, according to Cushman & Wakefield’s latest UK business briefing.
Deficit reduction and taxation plans are likely to remain an area of concern for some time but recent more positive news on economic growth and a fall in inflation may help reassure those fearing a substantial early increase in inflationary pressures.
For prime property the sentiment remains optimistic and yields have edged down still further, falling 5bp in March to an average of 5.85%, their lowest since May 2008. Yields have now fallen 153bp since the market low point one year ago but are still 142bp up since the market peaked in 2007.
The occupational markets are still best characterised as weak to stable although sentiment is steadily improving.
Yields in 17 of the 25 sectors monitored are now judged to be steady providing the most stable picture since August last year.
Furthermore, evidence in parts of the secondary market points to yields remaining high or even increasing in some sectors as investors take a reality check and face up to the very different supply and demand balances facing prime and secondary markets.
Increasing competition to lend is pressurising margins meanwhile and leading some lenders to consider riskier propositions. However even with lending costs down, many borrowers are struggling to compete with equity buyers given the debt structuring and amortization requirements being made. It is certainly apparent that many vendors still prefer to deal with equity rather than debt buyers to ensure a speedy and certain trade
Overall, prime property remains well priced to attract equity buyer interest, with premiums averaging 180bp over 10 year bond yields. However with borrowing costs of 5-5.5%, some way below prevailing yields, more leveraged buyers will emerge.
David Hutchings, Head of Research, Cushman & Wakefield said: "The market remains strong but it is clear that some investors are at the very least getting more pre-occupied with a range of other issues and this has led to a slight pull back in enthusiasm over the past month. 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. 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."
David Erwin, CEO capital markets UK said: "March saw another solid month for the market with sustained demand for quality product across all sectors. The predicted fall in shopping centre yields seems to have come to fruition, bringing that sector more into line with long term averages, whilst the really hot money is still focussed on London, both in the City and the West End where the fundamentals seem attractive on all fronts. We have, however, noticed slightly slowing volumes as an element of caution is employed by some investors concerned about UK economic benchmarks and certainly some of the UK retail funds are taking a more discerning view - 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".
For further information, please contact:
+44 20 7152 5110