The latest cPad (Commercial Property Auction Data) Market Flash from Acuitus and IPD reflects on the “unsettled” market that characterised 2011 and looks ahead to the opportunities that this year will present.
Acuitus’s Richard Auterac comments: “Private investor activity in the final weeks of 2011 was muted from both a buying and selling perspective.
“Some investors asked ‘why sell now when prices are so low?’ but this ignores several factors such as the opportunity cost of equity locked away in the investment and the management time and skill that will have to be applied over a long period of time until the property markets normalise.”
Looking ahead, the report recommends that investors remain alert to the potential that the sector offers and warns against falling into “a state of depression that extends the recession beyond its rational end”.
Richard Auterac comments: “Market mispricing – or an ‘unjustified depression’ about the state of the market – may now be offering opportunities for the intelligent buyer.
“The next 2-3 years could be one of those rare opportunities to start again. To let properties at rents that make sense to the occupiers and yet allow the investor a decent return on their money without the pressure of having to push the rents ever higher to service the loan.
“A new generation of investors may be rising slowly from the ashes of the last boom. This generation of new investors is so far proving to be more financially savvy, more plentiful, more international, and have a better grasp of what makes property tick.”
The latest cPad report shows that yields continued to weaken over the final round of auctions in 2011. In the short period between October and December the cPad average all-property yield rose 70 basis points to 9.1%. Yields for properties with less than five years to expiry have risen dramatically to 12.6% which is a reflection of the over-rentedness particularly in poorer retail centres where rents will have to be lower to attract tenants when leases expire. The average retail yield has weakened by 110 basis points since October and now stands at 9.3%.
However, investor demand is good for properties that are let to financially strong tenants on long leases (at least 10 years unexpired) and where, if there is an element of over-rentedness, it is not too severe.
Greg Mansell of IPD comments: “During 2011, the auction market has proven itself adaptable to the changes in the economic climate and a good barometer for the wider commercial property market. The pressure is now on investors to assess if the defensive characteristics of prime property and property in London are enough to justify further price increases.
“The auction data has shown that prime yields are also moving out and with price falls now filtering into the institutional market, it seems commercial property is in dire need of some good economic news for the start of 2012.”
To access the full cPad January 2012 Market Flash please click here
For further infomation, please contact:
Richard Auterac Acuitus +44 (0)20 7034 4851 (richard.auterac@acuitus.co.uk)
Greg Mansell IPD +44 (0)20 7336 9384 (greg.mansell@ipd.com)
