December 28, 2001—According to property consultants Cluttons, the UK commercial property market could be entering a new phase. In its quarterly market update the company claims property is a safe asset yielding a relatively generous income.
“The worst could well be over for commercial property by the end of next year,” said the company, despite predictions of weak rental growth for 2002. Cluttons believes that there could be sufficient pressure from occupiers to force rents to fall overall, but emphasises that more positive prospects will be in sight by the end of 2002.
Neil Chegwidden, head of research commented: “We forecast that all property total returns could dip to 5% next year and return to 8% by 2003. Importantly, 8% nominal return is approximately a 6% real return, which is higher than property’s 4.4% long-term average.”
The report also says that although the institutional property investment market is quieter since the World Trade Center disaster, private and debt-driven investors are likely to grow increasingly active. It is also predicted that accelerated slowdown imposed by the recent world events will continue to impact harder on the office sector than either the retail or industrial markets, with UK office total returns as low as 2-3% next year.
“Property now looks like a reasonably safe asset class, yielding a relatively generous income stream, and although there is limited upside potential to our forecasts there is also relatively low downside risk in the short-to-medium term. Such a profile places property in a relatively safe position but is unlikely to lead to a significant increase in non-private property buying.”
—Jessica Jarlvi
Reprinted with permission; copyright 2001 i-FM
