Flight to quality may boost prime property – RICS
The latest Chart Book from RICS notes that bank lending to the commercial property sector fell by STG 53m in July according to the latest British Bankers Association data, after two months in a row of increases. RICS says that while the lending picture had begun to look more promising, the actual improvements are still very small relative to the levels seen before the collapse of Lehman Brothers in 2008.
In general, rents and capital values across commercial property are broadly stabilising, RICS says, but the deteriorating economic outlook (examined elsewhere in the Chart Book) suggests that there are increased downside risks to both during the second half of this year. However, prime property could still benefit from a flight to quality, it adds.
RICS says its data shows that rents are slightly lower year-on-year for retail and industrial properties, down 0.8% and 0.9% respectively, while a 2% increase for office property helps to bring the all property level back to a flat reading year-on-year. Capital values have risen year-on-year in all sectors, although the annual growth rate has slowed “markedly” since the middle of 2010, RICS notes. “At the all property level, capital values are 2.1% above year-ago levels, while in the retail, office and industrial sectors, capital values are 2.2%, 2.8% and 0.3% above year-ago levels respectively,” it notes.
Investment yields remain close to pre-crisis lows even though they ticked up in all sectors apart from retail according to the latest IPD data. Initial yields at the all property level, retail, office and industrial sectors are 6.28%, 6.02%, 6.19% and 7.07% respectively, RICS says. Simple valuation metrics show that commercial property is currently “more or less fairly valued” relative to equities and offers good value compared with government bonds, it adds.
