Despite evidence of a UK property slowdown this week, capital inflows remain buoyant as overseas money continues to pour in to the sector.
The latest IPD monthly index (see p42) reveals that total property returns have almost halved compared with the same time last year, despite rising marginally to 0.9% in March. In the first quarter of 2007, total returns were 2.3% compared with 4.4% for the same period in 2006.
And latest investment figures from Lambert Smith Hampton indicate that property activity has slowed to its lowest point in two years (see p40).
IPD also said that retail yields had risen for the first time in five years.
“We are relying on rental growth again, which is great,” said IPD research director Malcolm Frodsham. “Yield shift has disguised what is actually happening in the market, which is that office rents are accelerating very fast.”
In its latest UKIT investment activity report, LSH says that deal traffic fell to its lowest level for two years in the first quarter of 2007, as the flow of stock into the market eased.
It said institutions continued to slow their level of participation in the market, with overseas investors and private property companies coming to the fore.
However, LSH’s head of national investment, Ezra Nahome, said that while a UK slowdown had been apparent, the appetite from private investors continues.
“The cycle has been driven by a desire to buy into the market – but it’s getting increasingly difficult to find opportunities where pricing can be supported by fundamentals,” he said.
“The investment market continues to run on very warm, if not hot,” says Greg Nicholson, chairman of Capital Markets at CB Richard Ellis.
“The inflow of international capital remains strong, with Middle Eastern, Irish and Australian investors targeting UK real estate. But many domestic institutional funds are being more cautious – and are trying to diversify overseas.”
Property returns
Yields almost halve in 2007
