Reasons to be cheerful – Savills
It’s Friday, the Rugby World Cup has just kicked off, and we’d like to look on the positive side today. So here are some upbeat notes from Savills, which says there are a few “quite persuasive” reasons why a “proper” economic recovery might not be that far off.
Savills points out in its most recent commercial property market update that, while July retail sales rose only 0.2%, many had expected a decline, and says this suggests that consumer confidence may not be quite as bad as some surveys have indicated. The firm also expects to see a significant fall in inflation in January 2012, when the most recent rise in VAT drops out of the headline inflation figure – “this will be very good news for real earnings growth,” it adds. Finally, it also notes a sharp improvement in public finances, and says the government’s austerity programme appears finally to be beginning to deliver.
Turning to the commercial property market in particular, Savills says that while the traditional search for safe havens in times of economic uncertainty has as usual supported steady yields and rising investment volumes, for London offices in particular, there is evidence elsewhere in the UK investment market of increased investor caution. Concerns are being raised about the strength of the UK economic recovery, particularly in relation to consumer confidence and spending, so Savills expects secondary and tertiary yields to continue to soften for the rest of this year.
In the rental market, Savills points out that while it is generally perceived that the only sectors producing rental growth are for Central London office property and retail property to let, other areas are also beginning to show rising average rents – particularly the retail warehouse market across the UK.
Looking further ahead, Savills notes that most commercial property developers surveyed in its monthly review of activity levels and intentions have cited ongoing restricted bank lending as the most common reason for the low level of new development under way. It says that property developers will undoubtedly continue to experience difficulties in raising senior debt for speculative development as a result of the existing and planned further requirements for banks to hold more capital. “We are firmly of the belief that the ICB’s proposal for ring-fencing retail and investment banking operations would raise the cost of borrowing for developers, as well as limit their ability to borrow for development purposes,” the firm adds.
