Fund managers add their weight to returning confidence |
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16.04.10 By James Whitmore The signs point to a slow-but-steady recovery for property this year
Lloyds Banking Group’s third quarterly Commercial Property Confidence Monitor shows that confidence and optimism in the market, which first emerged last September, are being sustained (see graphics, attached below). The new survey reveals that three-and-a-half times more property professionals expect activity to improve rather than slow down over the coming months. Almost half of respondents — 46% — believe activity levels will pick up and only 13% expect any decline, and 39% say it will stay at the same level. This gives a net confidence position of 33%, an increase from 31% at the end of last year. For the first time, courtesy of the Investment Property Forum, the sample of 467 property decision-makers includes property fund managers, who were the most confident of all respondents. “For the third consecutive quarter, we’ve seen improved confidence levels among UK property professionals as the recovery in commercial property values has continued,” says Gary Gerrard, corporate real estate director for Lloyds. “Although the market remains cautious, a background of improving economic stability indicates that professionals are expecting a slow and steady recovery.” He adds: “Having endured dramatic falls in capital values during the past two years, this period of calm and stability is exactly what the property industry needs right now.” Value-added opportunities Steady improvements in confidence have been borne out by improving expectations for property values over the past nine months. The new survey shows that six times more professionals are expecting values to improve rather than deteriorate, giving a net position of 32%, up from 24% in January and just 8% in September 2009. Half the respondents also expect investment levels to hold over the coming three to six months, but just more than a third expect increases, and only 9% think there will be any decreases. Interestingly, those expecting values and investment levels to rise now predict more modest increases, compared with the leaps expected last September. Nine out of 10 expect rises in values of just 1%-10%; and two-thirds expect similar increases in investment levels. Gerrard explains: “Investment sentiment has improved significantly in the past six months, largely led by the London office market. Prime stock has been in demand, leading to yield compression. “As the market has stabilised, so have expectations around values and investment activity, but the market is becoming increasingly polarised. While the recovery in London continues, the regions are lagging behind a little and demand for secondary and tertiary assets remains slow.” Time out: Gerrard says property needs a period of calm at present Confidence is highest with principals —developers and investors — working for the biggest organisations, professionals based in London and property fund managers. Two-thirds of principals employed by large-scale property businesses intend to increase their investment in the market, and a quarter expect to do so substantially. “These businesses have traditionally driven the market, so it’s very reassuring to see them taking a more bullish approach,” says Gerrard. “This can be seen in the renewed appetite for commercial property by private and institutional investors with record funds being raised at the back end of 2009. “This confidence is contagious, so as conditions continue to stabilise we expect to see this improving optimism passing on to the medium-sized and smaller players and spreading through the regions.” Fund managers are the most confident about activity and almost two-thirds expect to see improvements in the next three to six months. Andrew Smith, chief investment officer of Aberdeen Property Investors and a member of the Investment Property Forum’s management board, says the survey “supports the view that the UK property markets are recovering slowly and that the pronounced yield shift that drove higher-than-expected returns in the last quarter of 2009 has stabilised”. METHODOLOGY -
Source: Property Week (www.propertyweek.co.uk) |
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