Real Estate Investment Forecasts, Q2 2012

Report Summary:

• The UK economic outlook for the remainder of 2012 is mixed; External pressures continue to cast a “black cloud” on the economy, although the Olympics have the potential to provide a short-term uplift in sentiment for Q3 12.

• With low bond yields, secure income from property continues to look attractive (IPD All Property initial yields are at 6.3%). Rental growth across All Property has been stagnant since July 2010, with growth in H2 11 reversed in H1 12.

• As European banks deleverage, non-bank lenders are entering the market and/or expanding their loan books, providing alternative financing to real estate investors.

• There was £7.1bn in transactions completed in Q2 12, compared to a four quarters’ average of £7.3bn. Overseas investors remain the largest investors in the UK, taking about 66% of the market share.

• In Q2 12, office investment transactions reached nearly £4.6bn, up 16% over Q2 11, of which £2.4bn was in the City. West End office investments were down from Q1 12, falling from £1.1bn to £736m.

• Office market total return has been lowered to 4.2% from 6% due to our expectation that regional yields will continue to move out, off setting the strength of the Central London. Our forecast for 2012 has been revised down to 4.2% for the sector.

• Retail markets continue to struggle; about 37% of the total shops in administration closed in Q2 12, marginally better than the 41% recorded in Q1 12.

• Investment in the retail sector has slowed significantly with only £1.4bn transacted in Q2, down 48% from Q2 11. Our total returns forecast have been decreased to 0% for 2012.

• In the industrial sector, vacancy rates for big sheds continue to fall; availability has fallen by 28m sq ft in the past two years across the UK, highlighted by a 60% drop in availability in London.

About the Author:

The Colliers International Research team provide expert advice and a wide range of specialist services to clients across the UK, including a property market forecasting capability.

Our Net Stock Absorption office research is at the leading edge and provides a unique insight into the health of the London and UK regional office market