DTZ has published the latest UK all-property DTZ Fair Value Index TM results for Q3 2013. The Index, which offers insight into the relative attractiveness of current pricing in the UK property markets, declined slightly in the third quarter of 2013 to 85, from 90 the previous quarter. Nevertheless, the UK remains more attractive than Europe as a whole with 15 of the 20 markets covered being rated as Hot.
In this latest report, DTZ has for the first time produced a five year forecast of the UK FVI. This forecast identifies a significant decline in the relative attractiveness of UK markets. Looking forward to the year ahead, DTZ expects most UK markets covered by the FVI to become more expensive.
The UK FVI is forecast to fall rapidly to 43 by Q3 2014. This will be the lowest score for six years. Moreover, DTZ expect the UK index to continue falling and plateau to just 18 in the third quarter of 2015.
Richard Yorke, Head of UK Research, comments: “The rapid fall in the UK Fair Value Index will be due to a combination of yield compression, lower expected returns as regional markets become less under-valued, and higher required returns caused by rising bond yields.”
Consequently, DTZ expect a significant change in the relative attractiveness of UK markets. The number of Hot markets is expected to fall from 15, as of Q3 2013, to just one – Manchester retail – by Q3 2014. Conversely, the number of Cold markets is set to rise from one to four – London West End retail, London Mid Town and City offices, and Heathrow industrial – over the same period.
Commenting on the outlook for Manchester, Simon Lowe, Associate Director at DTZ said: “Investor appetite remains strong for all sectors in Manchester and the North West, but Manchester retail remains the most underpriced major centre in the UK. Supply side shocks such as The Arndale extension and The Avenue, Spinningfields have now settled and we have significant rental growth forecasts over the next few years as the UK economic recovery continues. Investors have always been keen to hold prime retail stock in Manchester but some are beginning to test the market, providing opportunities for new and other existing investors to acquire much sought after assets.”
Richard Yorke added: “Given our expectation of the Fair Value Index falling sharply from next year, investors should consider acting now in order to maximise potential returns.”