Colliers says outlook weaker for 2011

Colliers International is forecasting a total return of 14.7% for All Property in 2010, driven by a 60bp inward yield shift and a return to positive rental growth for the Central London offices sector. But next year it thinks the outlook is somewhat weaker, with yields set to fall only slightly and rental growth expected to be slightly negative across the market. Total returns are forecast at 7.5% as capital growth stagnates, the firm says.

The public-sector cuts mean that recovery is likely to slow down, while retailers are likely to have a “testing” Christmas ahead of the VAT rise in January, Colliers notes. The market for office space in Central London will continue to see rental growth, with prime headline rents likely to rise much faster than average Grade A rents overall, it forecasts.

“With gilt yields at historic lows and economic risk weighing on equity valuations, commercial property continues to offer an attractive proposition of stable income plus potential for capital uplift,” Colliers says. It thinks that opportunities to buy secondary stock at the bottom of the cycle are likely to increase in 2011 as more “distressed assets” reach the market and occupier market sentiment begins to firm.

Colliers meanwhile also says its provisional statistics show that total investment property transactions done in the West end of London during 2010 reached £5bn compared with £3.1bn in 2009. There were 120 deals in all, transacted by 90 different buyers, compared with 111 deals in 2009 made by a similar number of buyers.

The research from Colliers shows that UK buyers accounted for 58 of the 120 deals done this year, which represented about £1.1bn in value or around 20% of the total. Property Week quotes Colliers’ head of West End investment Nick Pemberton as saying that private overseas investors were still attracted by London’s liquidity, relative safety and international standing. He expects the diversity of capital inflows into London to continue into 2011.