Think/UK Multi-let Industrials

Non-prime real estate has been facing pressure from softening capital values in most areas of the country outside of Central London.

The re-rating of capital values after the credit crisis and ensuing recession is clearly over and non-prime values are likely to remain under pressure while the economy struggles its way through the deleveraging process. With volatile financial markets adding to uncertainty for much of last year, many investors have preferred to focus on prime, long-leased assets and have proved willing to pay keen prices for the privilege. Meanwhile, bank finance is difficult to obtain for riskier assets leaving the market polarised.

Although prime yields ought to remain defensive for some time, medium-term risks to values will become apparent in some segments of the market. Both long and short term interest rates are at historical lows and will inevitably move higher, even if not for a few years. In addition, the prime rental cycle in the highly favoured Central London office market will start to turn ex-growth at some point leaving yields susceptible to correction.