Weak economic outlook weighs heavily on occupiers and investors – Cushman & Wakefield
The uncertainty about future growth and stability is “clearly weighing on the minds of occupiers, developers and investors,” says Cushman & Wakefield in its latest property market research, noting that yields have continued to drift outwards in many sectors and locations.
Cushman & Wakefield’s All Property headline average prime yield edged up to 5.83% in June but the firm notes that not all sectors are suffering equally. Retail had the largest outward shift in yields during Q2, at 13bp, while average yields for office space softened by just 3bp and average industrial yields were unchanged at 6.39%. But the differences between prime and secondary properties remains a notable factor dividing the market, as does location quality. C&W says this gap will widen further in the short term as investors tighten their definition of what is prime, and demand a higher premium for anything that has perceived risks attached.
Within the market for industrial property and logistics units, C&W says leasing activity has been noticeably slower in H1 2012 as occupiers concerns deepen with regard to the economic outlook. Retailers, the main source of big-box demand to date, have also become more cautious, especially as the bad weather in the second quarter of this year affected trading. “Trade counter occupiers are still looking to expand opportunistically, particularly in the inner M25 and core South East markets,” C&W notes. But the big gap between requirements and the big-box stock available means that many occupiers are having to pursue build-to-suit strategies, while in some locations with strong demand but poor supply landlords are refurbishing older industrial units available to let.
The market for offices in West London is being boosted by the strong demand from TMT and energy companies while Edinburgh office space is seeing an improvement in leasing activity and take-up levels. However, the national offices market is suffering, as are other sectors, from the weak short-term UK economic outlook and the eurozone crisis. There are very few speculative office schemes under construction apart from in the Thames Valley, where eight developments are under way. In Central London, the markets for City office space and offices in the Docklands saw a sharp increase in take-up in the second quarter: while demand from the banking sector has weakened, it has held firm from other financial services firms. A lack of supply of West End office space is clearly acting as a barrier to higher activity levels there but investment market activity in this area is buoyant, C&W says.
Demand for high-street retail property in Central London is also buoyant, the firm notes, particularly in prime West End streets. Supply remains limited, which is continuing to push up rents and boost investment demand, especially from overseas buyers. Regional retail markets remain more mixed in terms of leasing activity, with the strongest occupational demand in main regional centres, and the stronger market towns in Greater London and the South East, whereas elsewhere weak trading conditions and wider economic woes are having an impact. Occupational demand in shopping centres remains highly selective with the strongest centres in the best towns generating the most interest. Demand for the best out-of-town retail premises in top locations has held up well, but cautious occupiers in this sector are delaying decisions and spending time on negotiations with landlords in order to get the best deals, the firm notes.
