Investors to move into secondary assets – DTZ
DTZ says that the property investment market in the UK is now clearly in recovery, with invested stock increasing by 1% last year and forecast to grow a further 4% in 2011. The firm’s Money into Property 2011 report says that this recovery is, however, rather modest when compared with the global average forecast growth in invested stock (9%) this year.
Hans Vrensen, global head of research at DTZ, adds that transaction volumes returned to their historical average in the UK in 2010, rising 46% to £33.4bn, reflecting positive investor sentiment and higher liquidity. DTZ expects transaction volumes to grow by 11% in 2011, in line with the global average, as more non-prime stock becomes available.
Following the strong recovery in capital values for prime UK property over the past two years, DTZ feels that there are now many more prime markets in the UK above fair value than below it. But it adds that prime London property continues to offer fair value – it says the London City, West End and Midtown office markets, and the West End retail market, currently offer adequate risk-adjusted returns, according to the DTZ Fair Value Index. DTZ expects investors to move into non-prime assets in the UK and to increasingly use value-added investment strategies this year.
Tony McGough, global head of forecasting & strategy research at DTZ, said: “With prime property now fairly priced, investors will begin moving up the risk curve, targeting non-prime, non-core markets for opportunities. This is being facilitated by increased lending, partly from non-banks, and a more stable economy. As the prime recovery extends into secondary markets, investors will need to work secondary assets to improve cash flow and capital value to realise attractive returns.”
Of the lenders that DTZ surveyed for its Money into Property report, 80% believe that the working-out of loans against prime property is either well under way, or already completed – but when it comes to secondary property, 50% think that the process has not even started. DTZ thus expects that the work-out of non-prime debt will lead to value recovery in secondary properties, while prime yields will remain flat.
