There are some encouraging signs for the investment market this week – at least if you are considering becoming a seller.
From Jones Lang LaSalle come figures that show prime yields have moved in to 6.95% (p42).
From CB Richard Ellis come more figures, these ones showing that the further slight hardening in the average yield produced a small amount of capital value growth in August, for the second month running (p44). Anecdotal evidence is also coming in from agents who are finding themselves in the unexpected position of having to call for best bids. Remember those?
Add to all this Roger Bootle’s prediction this week that interest rates will remain at their current record low levels for the next five years and it seems that willing buyers are very likely to stay in the market.
Just one year on from the collapse of Lehman Brothers and with the UK economy still feeling like it is in recession – despite some indications of growth – these signs of improvement seem extraordinary.
Cash-rich buyers have been waiting…
The reality, of course, is not that the UK property market has recovered but that the market is starved of good quality investment stock and saturated with cash-rich buyers who don’t want to miss the window to purchase a bargain.
This week, it was Miller Group’s turn to reveal that it has a £50m war chest, which it hopes to plough into commercial property over the next 18 months (p36).
On the other hand, vendors are trying to sell at levels that factor in a recovery – rather than a recovering market – meaning that while money wants to be placed, transaction levels are not improving dramatically.
Perhaps one solution to this dichotomy between supply and demand really could lie in the banks’ distress. Investors have been waiting for many, many months for the major property lenders, and bondholders, to press “go” on asset sales.
…and their moment could have arrived
These unwilling owners have been reluctant to force sales into a depressed market and thereby crystallise write downs on major loans. But it now seems that some are ready to make decisions and some chunky deals are starting to come through – perhaps signalling their belief that enough value has returned.
Last week, it was bondholders that put Shrewsbury on the market; this week Lloyds has forced the owner of the Silverburn shopping centre to put it on the block (p29). And a sale of Simon Halabi’s London office portfolio, which has been in the hands of bondholders since July, could come even sooner than expected if the taxman has his way (p40).
This is not the opening of the floodgates: above all, lenders are still grappling with the enormity and complexity of their problems. And some are deciding that now is still not a good time to sell, and are deciding to work through the assets – either with existing borrowers, in-house, or by appointing third-party asset managers – until values increase further.
However, the consensus is that more stock will be filtering out – not just from banks, but from other owners keen to see what prices can be achieved in the latest window.
