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KUALA LUMPUR: Demand for secondary property in the UK is recovering alongside prime properties in early 2010, the Colliers CRE/Real Estate Capital Investor Pricing Survey of the UK market suggested.
Although, this could reflect a higher risk appetite, it could also mean that there is too much money chasing too little stock, said Capital Economics when commenting on the survey findings on March 30.
As for capital vales, the previous Colliers CRE/Real Estate Capital survey had respondents expecting zero growth for 2010, but the latest survey shows that they now expect an increase of almost 5%. However, Capital Economics believes that property yields will benefit more this year from lower government bond yields and expect a bigger gain of around 10%.
Respondents to the March survey expected rental values to drop by about 3.5% this year, an improvement from the expected fall of over 6% in the last quarter. Rental values are now expected to rise by about 1% in 2011.
The Colliers report provides a prime/secondary breakdown of yields across the sectors – data which are rarely available from other sources.
“This breakdown also suggests that secondary yields fell by more than prime in each property segment in the first few months of 2010, so that the secondary to prime yield spread closed across the board. One reason for this could be investors’ risk appetite has grown in recent months,” said Capital Economics.
However, it is noted in the Real Estate Capital’s commentary on the survey, the amount of stock currently for sale remains low and, although no data is given, sales intentions are reportedly lower than for several years. Accordingly, the fall in secondary yields will likely reveal that investing institutions have plenty of cash to place in the market but little stock to invest in.
Overall, the survey further confirms the widely-held view that the commercial property recovery is set to continue this year with capital values rising. More than half the respondents are of the view that property remains cheap relative to other asset classes -- a strong reason to buy now.
