Colliers International’s latest Real Estate Investment Forecast has been slashed by 46% amid concerns for the secondary retail sector.
The agent’s all property total return forecast for 2012 was cut from 5.4% to 2.9% in Q4 2011.
It expects capital values to contract by 3.2% as supply of secondary property outstrips demand from investors.
Colliers economist Rahim Jiwani said the downgrade was prompted by oversupply in the retail sector and a lack of bank lending.
The agent also cited risk aversion in the bond market and rising unemployment, as drags on real estate investment.
It said only £5.4bn of deals across 189 transactions had been completed in the first 11 weeks of the year, down from £7.1bn from 296 transactions in the same period last year.
Overseas buyers ranked as the highest net investors for the fourth consecutive quarter, making £1.3bn more acquisitions than disposal.
Central London take-up dropped 18.5% in 2011 from the previous year as take-up in the City fell to 4.7m sq ft, its lowest annual level since 2003.
Jiwani said: “The prime-secondary yield gap will likely widen further as more secondary property cash flows come under pressure from lowered occupier demand. Colliers International forecasts rental values to contract by 1.4% for the sector, with shopping centres seeing the largest drop-off in rents, followed by the high street.
“Yields will likely soften 20-30 basis points, except for supermarkets which should remain at 5% by the end of the year. In 2012, the retail sector’s solid income return is expected to be offset by drops in capital values, but should recoup some capital losses in 2013 as the economy strengthens.”
jack.sidders@estatesgazette.com
