Manchester industrial upgraded to HOT in DTZ’s Fair Value Index
Relative investment prospects for commercial property in the UK improved during the final quarter of 2011, says DTZ, whose Fair Value Index score for the UK rose to 53 for Q4 2011 from 33 for the previous quarter. The firm has revised upwards its score for several UK regional markets in response to their more attractive pricing relative to government bond yields, which continued to fall sharply during Q4.
The market for industrial units in Manchester has returned to the HOT category, joining the Manchester retail property sector. Industrial property in Manchester is forecast to benefit from above-average rental growth in 2013 and 2014, driving capital growth, and combining with an attractive yield to create strong forecast returns.
Birmingham retail property, office space in Edinburgh, Bristol offices and offices in Cardiff have all been upgraded to WARM thanks to rising yields. London commercial property remains WARM thanks to its rental growth prospects, despite its lower yields compared with elsewhere.
In all, 19 of the 20 markets in the UK Index are currently rated HOT or WARM, which DTZ says offers investors “an attractive proposition in the current economic environment”. The UK is also outperforming the broader European Index score of 36, the firm notes. Yields in UK markets are generally slightly higher and the UK economy is seen as slightly less vulnerable than markets directly exposed to the eurozone sovereign debt crisis.
DTZ’s report also takes a look at the possible impact of a break-up of the eurozone, under which Greece, Ireland, Italy, Portugal and Spain would leave the single currency. It says that the UK could be expected to suffer two years of recession in this scenario, with rents for office space in the City of London falling 13% by the end of 2013, and rents for offices in the West End declining by 5%. It would also lead to declines in rents for office space, industrial units and retail premises outside London, with London retail property seeing a 3% fall in rents by the end of 2013. From 2013 onwards the firm says the market would recover, reflecting an economic rebound and the UK’s safe-haven qualities. Tony McGough, global head of forecasting & strategy research, adds: “By 2016 London West End office capital values are actually higher than under the base forecast, while London City capital values are around the same level. This reflects the impact of lower bond yields on property yields.”
