UK property now less attractive to investors – DTZ
The UK’s property markets now offer less attractive returns to investors, according to DTZ’s latest Fair Value report. The firm’s Fair Value Index for the UK came in at 33 for Q4 2010, compared with 48 in the third quarter of last year.
DTZ says the main reason for downgrades to some UK property markets is higher five-year bond yields, which have raised the risk-adjusted required return on properties and made the expected returns on these markets less attractive. This means that the decline in attractiveness affects office, retail and industrial property, it notes.
After continued yield compression in the final quarter of last year and a gradual weakening in the five-year rental growth outlook, DTZ has reclassified the markets for offices in the City of London and the West End as “warm”, down from “hot”. This indicates that they are at fair value now for the growth expected. Five other UK markets were downgraded from “warm” to “cold” in this report, including the Heathrow industrial market, again after an inward shift in yields.
Manchester still offers attractive opportunities within retail and industrial property, DTZ says – it has classified these markets as “hot”. “Both retail and industrial property in Manchester look attractively priced, with a solid income return and strong rental growth expected to support values in the medium term,” the firm notes. The Manchester office market is classed as “warm”.
The Edinburgh offices market was the only one to be upgraded, moving from “cold” to “warm”.
Martin Davis, head of UK research at DTZ, said: “London offices remain fairly priced with strong rental growth expected, despite City offices ending its two-year run as a “hot” market. Outside London and Manchester, the environment is more difficult to see very attractive opportunities, though in Edinburgh expectations are improving.”
