UK prime property offering better value – DTZ
DTZ says prime UK property now offers better value for investors than in the first quarter of 2011, with its Fair Value Index score rising to 50 for Q2 2011, from 28 in Q1 2011. The firm says the improved score reflects the fall in UK bond yields seen in recent months amid weakening confidence in the economic outlook. The resulting shift downwards in required returns “is likely to underscore the appeal of the solid income returns offered by prime property”, it adds.
“While capital growth is expected to be subdued in coming years, and there are downside risks, most retail and office markets are trading at yields of around 5%-6%. This offers a substantial premium over bond yields, which sat at just over 2% at end Q2, and have since fallen significantly further,” DTZ adds.
DTZ has upgraded several regional markets for office space from Cold to Warm, including Newcastle, Manchester, Leeds, Birmingham and Bristol, and has also lifted its rating on the markets for Manchester retail and industrial property to Hot from Warm. It has raised the markets for Glasgow retail and industrial space to Warm from Cold, and has also upgraded the market for Heathrow industrial property to Warm from Cold.
Martin Davis, Head of UK Research at DTZ added: “While a weaker economic outlook is impacting on occupier demand, the lack of supply at the prime end of the market is expected to keep rents broadly stable, with growth prospects in some markets. This lack of supply can be seen in the London markets where a shortage of prime product both in leasing and investment markets is supporting rental growth and yield compression.”
