King Sturge report predicts no capital growth in most property sectors
Andrew White and Robert Gibson
The slowest rate of economic growth in the UK for four years will reduce the level of demand for all property in 2002.
King Sturge has predicted growth of only 1.8% in 2002 and Dr Angus McIntosh, partner and head of research, said that the number of leasing instructions in all markets will be 10-20% lower than in 2001.
He made the grim prediction at the launch of King Sturge’s Commercial Property Predictions 2002. Its main theme is that there will be no capital growth in most commercial market sectors. McIntosh said: “Very modest rental growth will be offset by capital values falling in some markets, and average investment yields will remain around 7%.”
Peter Richards, national head of offices, noted the closing of the gap in the rate of rental growth between London and the rest of the UK. In January 2001, the average rate of rental growth rents in London was nearly 16% higher but by the end of the year this had narrowed dramatically to 6.5% because of a near 10% drop in the London growth rate.
Industrial partner Tim Johnson warned that the decline of the TMT and manufacturing markets over the last year had not been accounted for. But he said that total returns for industrial property for 2002 are estimated to be 7.8%, “slightly better than all property returns”. Air freight is also set to play an important role, with freight volumes around airports expected to grow. Johnson expects demand for tele-hotels and data centres to increase in the second half of this year.
Out-of-town retailing is expected to grow. King Sturge predicts that larger firms will become stronger but small retailers are weakening.
Partner Mike Taylor said of out-of-town retailing: “What has been regarded as the Cinderella of the property sectors has an important role within the economy and will exhibit greater sophistication than before.” He added, “there will be “further consolidation as a result of the strength, rather than weakness, of the market”.
In the town-centre retail market, partner Charles Miller said trends will lean towards mixed-use schemes.
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UKproperty markets – nominal change |
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Modest rental growth will be offset by capital values falling in some markets |
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|
Sector |
2000 |
2001 |
2002 |
|
|
Offices |
Rents |
12.8 |
4.8 |
1.9 |
|
Capital growth |
8.1 |
0.9 |
-0.3 |
|
|
Total returns |
15.5 |
8.5 |
7.5 |
|
|
Retail |
Rents |
4.1 |
1.8 |
2.1 |
|
Capital growth |
0.4 |
-1.5 |
0.4 |
|
|
Total returns |
6.6 |
4.9 |
7.0 |
|
|
Industrial |
Rents |
4.5 |
2.3 |
2.4 |
|
Capital growth |
5.4 |
-0.2 |
-0.3 |
|
|
Total returns |
13.8 |
7.8 |
7.8 |
|
|
All property |
Rents |
7.1 |
3.0 |
2.1 |
|
Capital growth |
3.5 |
-0.4 |
0.0 |
|
|
Total returns |
10.4 |
6.6 |
7.3 |
|
|
Source: King Sturge and Real Estate Forecasting, 20 November 2001 |
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