Best time in a decade to invest in commercial property, say experts
May 6 2009 by Alun Thorne, Birmingham Post
Now is the best time in a decade to invest in commercial property, according to a leading agency.
The first quarter of 2009 saw UK commercial property transaction yields reach their highest levels for a decade.
The average yield on transactions in the first three months of this year rose by 97 basis points to reach 7.84 per cent, with foreign investors taking advantage of low prices and the weak pound.
Ezra Nahome, head of capital markets at Lambert Smith Hampton (LSH), said: “The commercial property market is offering better value now than at any other time this decade.
“Trading levels are down significantly and yields have moved out across the board.
“The value of transactions in the first quarter of this year was down by almost 50 per cent on the first quarter 2008 figure, with £3.9 billion of deals completed.
“Most of the major transactions at the moment have involved overseas investors, who have had the added benefit of the devaluation in pounds sterling, having fallen in value by 20 per cent.”
He said that meant overseas investors had been able to buy property for 60 per cent of its mid 2008 value.
This trend has been borne out by the figures, with overseas investors increasing their exposure to the UK market by just under £1 billion.
Ed Jones, head of investment at LSH’s office in Birmingham, said a variety of potential investors were making themselves known.
Mr Jones said: “It’s not just the foreign investors who are actively looking for the discount that is evident.
“One very significant chunk of the investment market is getting more expensive daily, which is those properties leased to excellent covenant and on long leases. There simply is not the supply of this product to meet the investor demand that is out there.
“Informed and seasoned investors recognise that this is a superb time to buy but the dichotomy is that the banks are still not lending on particularly attractive terms, to put it bluntly.
“Gearing is still low and repayment terms are less flexible and often more expensive in the long run than the lending terms we have been witnessing over previous years, the level of equity that an investor is required to put into a deal is high and that’s why we see equity as the new debt.
“However, those investors that are prepared to put more equity into a deal are also recognising that the returns are far more attractive than the interest rates they can achieve by leaving their money in the banks.
“I think the market is at a tipping point and in some cases there has been an over adjustment in value terms and some buyers recognise this.
“Leave it too late in buying terms, then join the back of the queue. True virtue is to buy at the bottom and the real risk- takers recognise this is more or less now.
“The skill will be in the selection of quality, location and, very importantly, to identify those occupiers that can survive the storm.”
The office sector has seen the sharpest slowdown in activity, with £1.2 billion of property changing hands in the last quarter, compared to £4.2 billion this time last year.
The most significant sellers in the market continue to be the UK institutions. So far this year they have sold £1.6 billion of property and this has come on top of the £10.8 billion of sales in the previous 15 months.
Over the same period they have made purchases totalling £4.3 billion, resulting in net disposals of £8.2 billion since the start of the credit crunch in August 2007.
