UK market confidence falls, but investment plans are resilient – Lloyds
Confidence in the UK commercial property market has fallen, says Lloyds Banking Group, as worries about the economy and the eurozone crisis have taken their toll on sentiment. In its latest survey of financial decision-makers in the UK corporate real estate market, the bank found that confidence in the near-term outlook fell between May and August, after three consecutive quarters of increases.
“While sentiment remains higher than the recent trough in the second half of 2010, several groups have slipped back into negative territory, signifying that those expecting a slowdown in UK activity outweigh those expecting a strengthening,” the bank reported. There was a particularly steep fall in expectations among major businesses, which had registered a strong pick-up in recent months. Fund managers were also much less optimistic than in the previous survey in May, with the net balance of this group falling to –20 from –10 as only 10% expected activity to pick up while 30% expected it to decrease. Businesses in London, however, only recorded a one-point decline in their expectations compared with the May findings.
When asked to consider prospects for activity levels in their own sector during the next three to six months, major businesses and those in London were the most optimistic, with positive net balances of +20 and +13 respectively. However, for both groups the proportion of those surveyed who expected a pick-up in activity had declined since Lloyds’ survey in May. Businesses outside London (-18) and advisers (-22) were the most pessimistic groups.
Lloyds said its survey showed that portfolio performance had deteriorated since its previous report, with London-based companies the exception. “This strengthening lines up with the findings of the 2011Q2 RICS Commercial Market Survey which reports that rental expectations for London are relatively buoyant on the back of strong demand from occupiers and declining availability,” it noted. Most businesses also expected an easing of the recent pace of price growth, but again medium to large businesses in London bucked the trend.
Despite the fall in confidence, the survey shows that investment intentions remained resilient. More than two thirds (70%) of the major businesses surveyed intended to increase their exposure to the property market during the next quarter and only 10% were seeking to reduce their level of investment. Among medium to large London businesses, 61% were also planning to increase their property investments during the next three months, up from 40% in the previous quarter.
Where will this money be invested? London – unsurprisingly – was the area of most confidence, but outside the capital there were expectations of increased activity in some regional markets. “When asked where they would consider outside London
for the greatest gains in the next two to three years, the South East was mentioned most frequently – by between 52% and 65% of businesses depending on size and by 78% of fund managers,” the bank noted. The next most popular location was Edinburgh, with 31% of medium to large respondents seeing it as an attractive investment location, followed by Bristol with 29%. Medium to large business advisers also tipped Manchester (net score of +16) and Cardiff (net score of +6) as locations for investment, the bank said.
