Gloom from the Item Club
The Ernst & Young Item Club is not feeling particularly cheerful. In its latest report on the commercial property market, the economic forecasting group finds a number of reasons to be gloomy.
While UK commercial property prices rose 3% in December – their largest monthly gain for 23 years – the Item Club feels that the surge has been driven primarily by sentiment rather than fundamentals, and cannot be sustained for much longer. In other words, those who watch the commercial property market have decided that values have reached their lowest point and so have begun investing once more – there has not been an improvement in economic conditions to back up the rise in values, as can be seen by looking at the continued rise in vacancy rates and the fall in rents overall during the past year.
The Item Club also says the Bank of England’s Quantitative Easing (QE) programme has helped to fund recent property transactions, as it has brought more cash and liquidity into the market. But QE is widely expected to end soon and there is also a greater risk to banks of more property companies defaulting on their loans, the Item Club says, which means that the growth in activity seen in recent months is now likely to fade.
There is a ray of sunshine however – the weakness of sterling is expected to continue to support the commercial property market for some time, as it boosts the attractiveness of the UK market – and London in particular – for foreign investors seeking to pick up a bargain.
Question: What does the Item in Item Club stand for?
Answer: Independent Treasury Economic Model. The Item Club is so called because it uses the same economic models as the Treasury in preparing its forecasts. It is sponsored by Ernst & Young. Go and impress someone with your knowledge!
