Marketbeat - An Overview of the UK Property Market - August 2011

Report Summary:

The outlook for the UK economy remains mixed, although momentum should slowly gather more pace as we move through the second half of the year, fuelled by the low interest rate environment, continued strong export demand, a weak Pound and signs of increasing levels of business investment. All in all however, it has been a weaker first half to the year than expected, with modest GDP growth of 0.7% in the six months to June and faster expansion constrained by domestic events as well as one off global events such as the Japanese earthquake.

UK all property total returns continued to steadily flatten out last quarter, ending the period at 9.1% for the year. This completed a 12 month period of steadily slowing performance since the highs of the market, 24.2%, seen in July 2010.

Outside of London, rents for anything other than the best locations remain under pressure, with confidence fragile and occupiers risk averse. There are some positive signs emerging, with take-up in some key regional markets such as Glasgow improving, investment demand for well leased prime assets is up, while there is some increased interest in assets which appear underpriced in second tier cities.

The industrial sector continued to be the weakest performer over the quarter, with 8.1% annualised total returns. There has been little change in income returns, which have remained relatively static at 7.8%, while capital growth experienced further deceleration to end the quarter at 0.3%. Investment activity is still weak due to a shortage of quality assets and, while the supply of stock is improving, much of it is still secondary, often in portfolios released by the banks, and in many cases does not meet investor requirements. Active demand is generally focused on prime stock, with a high level of unsatisfied requirements, particularly in the South East.

About the Author:

Cushman & Wakefield research staff are located throughout the world with the EMEA service co-ordinated in London, the Americas in New York and Asia in Shanghai. Research provides a strategic advisory and supporting role to clients and other departments within the firm with extensive and continuously updated information systems covering property, economic, corporate and social trends. Consultancy projects are undertaken on a local and international basis. We provide in-depth advice and analysis, producing detailed market appraisals on current and future trends for developers, investors and occupiers. We also advise on location and investment strategies and portfolio performance.