Launching its 2013 Money into Property report, DTZ says UK invested stock fell by another 3% last year, to £541bn, taking the total decline since the 2007 peak to 7%. But despite the decline, the firm’s analysis shows “mounting evidence of a recovery in UK real estate”.
This deleveraging was again led by the reduction in debt held against property; but while bank lending has declined, non-bank lending has stepped up as insurers, funds and bond issues move into to plug the gap. Non-bank lending was still only 8% of total private debt last year but it has been rising quickly: DTZ says it grew by 35% in 2012 after a 17% expansion in 2011. Nigel Almond, head of strategy research at DTZ and co-author of the report, says a more diverse funding base will decrease the reliance on traditional bank funding “and hence improve the resilience of the market in the face of cyclical swings in future”.
Although investors and lenders remain wary, they expect more supportive funding conditions looking ahead, DTZ says, and 61% of lenders in the report say they have made substantial progress in their workout of non-prime loans. More than 75% of investors say that finding access to new acquisition finance is not an issue – compared with 61% a year earlier; and refinancing existing debt is not considered a major problem, with 70% of respondents saying they have no difficulty in accessing debt.
Investment volumes were up 6% in 2012 to £32bn following the previous year’s decline. Activity focused on the highly liquid London markets, with foreign investor activity up 61% lst year. DTZ’s latest Fair Value analysis indicates that the UK market now provides the best relative value across UK property in 11 years and is out-performing the broader European markets. Ben Burston, head of UK research at DTZ, notes: “London offers large lot sizes and liquidity. It is also benefiting from a relatively resilient occupier market”.