2013 will be better than 2012 – but not much, says Savills
Savills says the lurking concerns about the US fiscal cliff and the eurozone will continue to send most cross-border property investors heading for safe havens such as London offices and prime UK retail property in 2013. This will continue to support the current low prime yields in both sectors, and the firm expects to see a slight hardening in the City of London offices market next year.
Meanwhile yields for secondary and tertiary properties are expected to continue to soften as concerns about rental growth prospects and bank deleveraging drive continued risk aversion. The widening gaps between prime, secondary and tertiary yields have been the investment story of 2012, Savills says, with the gap between secondary and tertiary now well above 1,000bp in some sectors.
However, despite the continued risk aversion, Savills expects to see a pick-up in investor interest in asset management and refurbishment opportunities outside London next year, and is forecasting “a gradual ripple outwards of the bottom-feeding that we have seen in the London office market this year”.
The firm’s overall outlook for commercial property performance in 2013 is fairly similar to that of 2012, but with slightly better rental and capital value growth outside London. Savills expects prime regional office and retail rents to stabilise, and to rise a little in some locations, but says there will not be enough rental impetus overall to deliver a “proper recovery” in total returns until 2014. Having said that, the firm does expect the All Property total return in 2013 to reach around 6% – a significant improvement on the expected result of 2% for 2012.
