UK commercial property more polarised than ever – Prupim
The market for commercial property in the UK is more polarised now than ever, says Prupim. In its latest Real Estate Perspective report, the property fund manager says investors increasingly prefer prime assets with limited potential for growth over secondary assets – which may offer greater growth prospects in the long term – as a result of expected “flat-lining” domestic economic growth.
The division between prime and secondary property markets is likely to grow as investors remain risk-averse in their commercial property buying choices, the firm says. “The challenging nature of the occupational environment means investors will continue to show a strong preference for assets which are perceived to be more ‘prime’”, the report adds.
The continued lack of debt finance for riskier assets is set to exacerbate the impact of weak occupational demand, Prupim warns. This implies a widening price gap between prime and weaker secondary property in the short term.
Looking at property market sectors, Prupim thinks the prospects for sales of available offices and retail premises are particularly polarised. Investors are prizing trophy London office space, it notes, while within retail more secondary locations are seeking weakening rents and rising vacancy rates.
Deputy head of research at Prupim, Richard Gwilliam, says: “The high prices quoted for some of the ‘primest’ assets has forced some investors to look for better value elsewhere, and selectively increase exposure to good secondary assets. But, overall, secondary and tertiary stock continues to be shunned, by investors worried that a long-term stagnant economy will subdue rental growth, the engine of property returns.”
“The gloomy economic outlook implies investors may focus on asset managing their investments ready for the upturn, rather than making changes to investment strategy,” he adds.
