Still good opportunities in prime UK property – DTZ
There are still good opportunities for investors in all prime UK property markets, says DTZ. In its latest Money into Property report, the firm says it rates all prime UK markets ‘hot’ or ‘warm’ and says non-prime opportunities should also “prove attractive for capable and nimble investors”.
DTZ says its view on the UK property market is more positive than the consensus among investors, who expect less investment activity, and lenders, who expect new lending to be lower and conditions to tighten, plus a further decline in existing loan performance.
The DTZ report says UK invested stock declined by 1% in 2011 to £537bn, as a result of a 4% decline in the debt component that more than outweighed 4% growth in the equity component. Other major property markets in Europe and elsewhere grew during this period. The fall in the debt component “marks the UK out from most other major markets in Europe, as banks continued to reduce their lending books”, the firm notes. It expects further bank deleveraging ahead as a result of new regulations, but still forecasts modest stock growth as non-bank lenders start to fill the debt funding gap.
Hans Vrensen, DTZ’s global head of research, said that the falling debt in the UK confirmed that this market “has a bigger debt problem than most other European countries. However, it is also ahead of others in working through its legacy debt issues”.
Investment volumes in 2011 were down 10%, but DTZ says the UK remains one of the most traded markets in Europe, with a 6% liquidity ratio. It says the lower investment activity last year was primarily due to a lack of debt availability and a mismatch in pricing expectations between vendors and potential buyers. Overseas investor activity was again focused on Central London markets last year, the firm adds.
Tony McGough, global head of forecasting & strategy research at DTZ, says UK invested stock is forecast to rise by less than 1% in 2012, but then to grow more than 3% in 2013 in the firm’s base case scenario (which assumes slow and steady growth). In DTZ’s downside scenario (which envisages the breakup of the eurozone), stock is projected to decline by 18% in 2012 and to rise by 1% in 2013. The firm says the UK market for office space would suffer a more acute negative impact on total returns initially under this scenario but would then recover more quickly than most major European markets.
“Capital values for UK markets are relatively resilient under our downside scenario,” he adds. “Investment volumes are projected to rise by 12% in 2012, as we see more stock released to the market including bank sales. Under the downside, we forecast that volumes will be down 23% in 2012, increasing by 8% in 2013.”
