Prime pricing ‘about right’ as investors turn to secondary assets – Savills
Why are prime yields so stable? Savills examines this question in its latest commercial property market overview, noting that the average prime yield across all sectors and locations remained at 5.64% this month. Have investors started to believe that prime pricing has become as keen as it will get in the current cycle? The firm thinks that the increasing shift to secondary assets may have something to do with the stability of prime pricing – it points out that investors are now seeing more opportunities to add value to secondary properties or locations and are on the hunt for higher returns.
Savills notes that five of the 13 subsectors it monitors are now expected to see prime yields harden over the next quarter. Its research concludes that prime pricing is currently about right, and that there are some subsectors that could support further yield hardening. “In particular we expect the security of UK investments and weak sterling to continue to stimulate non-domestic investor demand,” it adds.
Savills also notes that its head of valuation William Newsom recently conducted his annual review of the UK lending market, and has concluded that the tone has improved considerably in the past year. The review identifies 16 lenders that are motivated to carry out bigger-ticket property lending, and six of these are new to this list from last year. In addition, nine of the 16 are prepared to go above £100m in a single tranche, he found. He also highlighted that the volume of new lending in 2010 was better than expected, and he is now forecasting a more positive recovery in the lending market than before.
