The latest Property Snapshot from Colliers International reveals risk appetite is up and greater economic policy certainty is impacting positively despite weak UK fundamentals. According to the commentary, the FTSE 100 is at its highest since May 2008 on the perception of increased UK, US and eurozone policy stability, as well as increased worries about a sovereign and corporate bond pricing bubble. The impact on property is not yet clear.
Dr Walter Boettcher, Director of Research and Forecasting at Colliers International, summarised the findings of January’s Property Snapshot, as follows:
Year-end transaction volumes may have fallen short of expectations, but this may reflect lack of supply rather than keen pricing. Prices were generally stable and buyers were most interested in prime.
Retail: The year end was quiet, total retail transactions in 2012 approached record levels. St James completed its purchase of Staples Corner RP for £24.4m at 5.7% IY and RLAM bought Crownhill RP in Plymouth for £21.5m at 6.8% IY with repositioning of the asset expected. Brockton Capital also made a value-add purchase of Ravenside RP (open A1 consent) in Erdington for £25.5m at 8.6%. Supermarkets: AXA bought Tesco in Derby for £26.25m at 4.38% IY.
Offices: City - Despite disappointing year-end volumes, pricing was firm as evidenced by Deutsche Bank’s purchase of 1 Threadneedle Street for £63m at 4.5% IY and Hines’ purchase of 1 King Street for £35m at 5.25%. West End - Core assets remain in great demand by overseas investors.
Industrial: Multi-let estate portfolios found a ready market. The Industrial Trust sold 32 estates to Hansteen Holdings for £56.8m at 10.1% IY; the Crown sold three estates to Knight Frank IM for £32.4m at 7.6% IY; and SEGRO sold four estates to CEG for £25.9m at 13.4% IY
Shops trading remains tough, especially for non-food. Online sales continue to erode high street trading and little evidence of rental recovery ex-London is evident. Consumer confidence is low despite real disposable income increasing by 2.7% in H1 12. The savings ratio reached 7.7%, the highest since Q2 09. Retailer fortunes are mixed; John Lewis reported strong growth, while M&S reported falling sales. Jessops ceased trading with 191 shops closing and job losses of 1,370 and HMV has gone into administration.
Demand remains sluggish in the City, expansionary in the West End, while regional centres expect several large completions in Q1 13. ONS data show that financial and business services employment increased in Q3 12 by 24,000, but the increase came from growth in professional support and administration; bank hiring is down. City workers dismissed for disciplinary reasons reached 1,373 in 2012, up 76% on 2011. City: Year-end deals boosted take-up to the ten-year average of 4.8m sq ft pa; bank take-up fell to a record low of 100,000 sq ft. Headline rent is stalled at £57.50 psf as evidenced by an imminent deal at Walbrook. West End: Headline rent is £110 psf with several requirements likely to push this figure higher.
Tenants remain cost conscious, with few expanding, hence rental growth is still exceptional and localised. Speculative activity is still limited despite lack of quality space. Industrial confidence remains well below the 2007 and 2011 peaks as trading conditions for the sector remain difficult. Manufacturing fell by 0.3% m/m (-2.1% y/y) in November, the fourth consecutive month of contraction. According to the IPD, rents have fallen for 4.5 years. Nevertheless, investors remain interested in multi-let parks, as risk is seen to be well diversified among a wide range of occupiers. Distribution warehouses are also of interest as internet retailer demand remains strong.
The FLS is impacting mortgage availability and cost, although approval rates are responding only slowly. Forecasts suggest flat price growth in 2013, but London will fare better. House prices grew by 2.7% in 2012 according to Halifax, but fell by 1% according to Nationwide; both forecast flat growth in 2013. London demand continues; Battersea Power Station developers report that 600 flats were reserved in the first few days of marketing