Cautious outlook from C&W
Pricing of commercial properties for investment is most likely to move sideways in the next few months, concludes Cushman & Wakefield in its fourth-quarter UK UK Marketbeat report. Investment transaction volumes in Q3 were their best since 2007 and sentiment in occupational markets improved slightly, although still from a low base. But the market remains sharply divided between London and the South East, and the rest of the UK, C&W notes. This polarised market is expected to continue in the months ahead.
“In any event, with new development still constrained by risk aversion and a lack of finance, it is expected that the property market north and south will be driven more by supply than demand over the next 6-12 months,” the firm says. Concerns about public-sector cuts and the effect on provincial office markets about the effect of the government’s plans for its own property portfolio mean that tenants are expected to remain cautious.
C&W expects the theme of Grade A stock shortages to become more apparent in the months ahead but thinks that this will not put significant upward pressure on rents in the short term, with the exception of Central London. The firm thinks a more likely scenario is “a busier and more competitive market, but one in which occupiers remain sensitive to property costs, while investors continue to focus on income quality and cash flow strength but steadily look to take more risk in pursuit of the right stock.”
Within the retail sector, C&W notes that prime leasing activity increased in recent months in all major retail sub-sectors. It says the retail warehouse market was particularly active, but says that other than in the very best parks “it will probably be 2011 before void rates fall to a point which tips the supply:demand imbalance back in favour of landlords.”
The market for office space in the West End and the City has been buoyant but elsewhere leasing has been difficult in many parts of the UK, with occupier demand cautious and generally driven by lease events, C&W says. There has been a robust level of activity for “big box” space within the industrial market, with the first three quarters of 2010 exceeding the whole of 2009, with other parts of the industrial market starting to recover although occupiers remain cautious and driven by cost-cutting rather than expansion.
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