Investors delay as eurozone turbulence takes its toll – Savills
Savills says the rise in “economic turbulence” has led many investors in UK commercial property to delay their decisions. It notes that the average prime yield remained at 5.57% in November, which is a difference of less than 25bp compared with a year ago. The only change Savills witnessed in November was in sentiment, with downward pressure disappearing from all market segments except for office space in the M25 region.
A resolution to the eurozone sovereign debt crisis is key to the investment market, as it is to so much else, the firm says. It believes that if the ECB does step in as lender of last resort, “a more positive economic growth story for 2012 and beyond is supportable”. This would deliver rental growth and support investment decisions, especially those targeting secondary markets and asset management opportunities. However, a longer-term delay to a eurozone solution would make upward pressure on yields more likely. And no resolution would bring “double-dips in economies and property markets alike”, Savills warns.
Savills says its Commercial Development Activity index has indicated another slippage in activity levels since the summer. It notes that respondents to its survey have indicated concerns about weak economic growth and a lack of debt availability as reasons for the downturn, but Savills says it sees a very strong link between overall service sector employment PMI and its own index. The firm says this represents “a ray of optimism” for the future, as while lenders’ attitudes to speculative property development are unlikely to change much in the medium term, the service sector is forecast to see a return to growth by 2012. “This will then feed through to demand for office and retail space in particular, and subsequently pick-up in development activity,” the firm points out.
Savills also considers the market for overseas investors in UK commercial property, and says that further worries about eurozone contagion in 2012 look set to support “continuing high levels of non-domestic investment in London”. On the other hand, it says that as the global economy stabilises, it expects to see emerging markets gaining in popularity.
