Glimmers espied Though not green shoots or light at the end of the tunnel, the gloom is brightening up. But caution remains, says Stacey Meadwell
Recent headlines saying that DTZ is to lay off another 100 staff around the country, and EGi’s job tracking indicating a rise in redundancies in September, surprised the property market, which had hoped the worst might be over.
So it is no surprise that there is caution among London’s property players about job prospects.
Our third sentiment survey of the year shows no shift in opinion about the issue since the second quarter, with the majority of respondents still feeling there could be some more redundancies ahead, but that the worst is over.
The biggest change in opinion is about the market in general. Now, more than one-third of respondents believe that there will be substantial improvement over the next six months, while just over one-quarter dare to reporting seeing “green shoots of recovery”.
Analysis of the results from individual sectors, however, shows the shift in mood has been minimal.
The marked improvement in confidence about the investment market – revealed by our survey in Q2 – has continued, but at a much slower pace. Most respondents still have worries about investment over the next six months, although there has been a slight increase in the numbers of those who believe that “things are on the mend”.
However, asked this time whether there would be further falls in capital values, nearly two-thirds of respondents have shifted into the “no” camp. Among those who still believe that there will be further falls, the majority believe that this will be by a modest 5%, compared with nearly one-third in Q2, who believed that the fall would be double that.
Sentiment about the occupier market has taken some time to improve, not just in London but in key markets around the country. But although the latest survey in London shows a noticeable improvement in how the market feels about demand, respondents are a long way from opening the champagne.
Two-thirds – a slight increase on Q2 – have “some worries” about demand over the next six months, but the number who say that they have “no confidence” at all has more than halved since the last survey. And there has even been a marginal shift in those expressing “confidence”.
Incentives available
Bradley Baker, head of central London tenant representation at Knight Frank, says: “It looks like the window of opportunity for tenants to secure the very best deal is narrowing, although the market is still in their favour for now, with rents still low by historic standards, and large incentive packages still available.”
Caution remains about rental movement, however. While there has been an increase – from 10.1% to 37.3% since the last survey – in those believing that rents will not fall further, more than one-third of respondents still expect that there will be modest falls in the next six months.
It is this lack of optimism about the leasing side of the market which could in part explain the pessimism about future development.
There has been a small improvement between our survey in Q2 and today’s in opinion on the ease of securing development funding, but opinion about future activity is still firmly stuck in the “pursue planning but not start on site” option. There is, however, good news for planners, with fewer respondents believing that schemes will be put completely on hold.
Anthony Duggan, partner and head of research at Drivers Jonas, says: “It appears that the bottom of the market is being called by both the occupiers and the investors. Both are jostling for space and, as a consequence, are beginning to turn pricing around in both the rental and capital markets.
“A level of caution does, rightly, remain present, as all continue to peer around the U-shaped bend in the economy and hope that the double-dip recovery does not become the likely scenario in 2010.”
