Prime yields stabilise and investment activity increases as 2012 closes
24 Jan, 2013, London
The UK property investment market in 2012 ended on a stronger note than many expected - yields stabilised and investment activity increased in the closing months of the year, according to a report by Cushman & Wakefield.
Cushman & Wakefield projects forecast activity for 2013 will hit £35.5 billion, 7.5 per cent ahead of 2012.
Deal volumes closed out the final quarter of 2012 at around £8.5 billion, on par with Q4 2011. However, volumes for 2012 as a whole are estimated at £33 billion, just below the 2011 level of £33.5 billion. This has been characterised by fewer, larger transactions - there were a total of 1,400 deals in 2012 compared to 1,800 in 2011.
Additionally, the UK's share of the European market has risen from 30 per cent to 35 per cent.
Confidence has remained cautious overall but there is a greater willingness on the part of investors and financiers to act and an acceptance of pricing levels for better assets. Trading volumes increased by 15.6 per cent between the first and second halves of the year.
Prime yields for the best space have stabilised and may harden in the months to come. However, it is clear that weaker property, where income will be hard to replace let alone grow, may see yields rise further before risks are adequately covered.
In terms of rents meanwhile, supply shortages will lead to some areas of growth, driven again largely by London, while average rents will be flat. As a result, capital values will be broadly unchanged and total returns driven by income at around 6 per cent for the year, with offices leading and retail lagging.
The debt availability situation has also improved with a modest increase in lending sources and competition, as well as signs of an improvement in lending terms - aided by the Bank of England's Funding for Lending Scheme. Stock availability is also likely to improve.
Cushman & Wakefield's head of UK capital markets, David Erwin, said: "We begin 2013 on an optimistic note. Volumes held up well in 2012 and we can identify plenty of unallocated equity for our sector looking for a home. Rental incomes haven't completely stabilised outside of London but market pricing is taking that into account and liquidity is improving.
"If investors are looking for stock and opportunities with above average returns, they may have to move up the risk curve and based on current sentiment changes we think they might, albeit cautiously. It could be a good year for non-core prime which seems to fit the bill for those seeking both income and capital growth."
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