Not as dramatic as last time?
Mark Twain once said: “history won’t repeat itself, but it may rhyme”. Invista Real Estate Investment Management believes this saying illustrates what may happen next in the UK commercial property market.
The recent strong recovery in UK commercial property resembles that of the early 1990s, the group says, when values jumped sharply, despite falling rents, only to slip back again the next year. After January 1994, quarterly annualised returns dived from 39% to 1% in just 18 months. While the group believes that something similar will occur in the next 12 months, it says there are sufficient differences in the underlying fundamentals to justify adopting Mr Twain’s quote.
While UK commercial property market returns are set to ease over the next 12 months, Invista believes that we are unlikely to see as dramatic a slowdown as we did in the mid-1990s. The historically high margin between property and government bond yields should protect investment performance in the short to medium term, it says.
Despite the likely positive effect of a subdued development pipeline, few investors are expecting a speedy recovery in the occupier market this time round because recent economic growth has been weak, Invista says.
We are likely to see a repeat of the mid-1990s rental picture, it believes, but the near-term outlook for the investment market looks a little more favourable. The group anticipates total returns of 7.5% over the 12 months to end-May 2011, “but the risk lies very much on the downside,” with the risk of sharp rises in government bond yields the most significant threat, it cautions.
