DTZ, part of UGL Services, a division of UGL Limited (ASX: UGL), presented the findings of its flagship Money into Property 2012 UK report to over 100 guests today at The Property Debate event, held at Austin Court in Birmingham city centre.
Following the presentation, Mark Barrow, Strategic Director of Development at Birmingham City Council provided an insight into current investment projects across Birmingham.
DTZ’s report revealed UK invested stock shrank 1% to GBP 537 billion in 2011, while other major markets on the continent and elsewhere grew.
Hans Vrensen, Global Head of Research at DTZ, commented: “Falling debt in the UK confirms that this market has a bigger debt problem than most other European countries. However, it is also ahead of others in working through its legacy debt issues.”
In the UK, the equity component, which is smaller, rose by 4% but this growth was not sufficient to outweigh a 4% decline in the larger debt component of invested stock. This fall in debt marks the UK out from most other major markets in Europe, as banks continued to reduce their lending books.
Investment activity in the UK fell back 10% in 2011, primarily due to a lack of debt availability and a mismatch in pricing expectations between vendors and potential buyers.
David Tonks, Senior Director at DTZ in Birmingham commented: “The situation in the West Midlands broadly reflects the UK wide scenario with a marked reduction in transactional activity since autumn 2011 as the banks continue to de-leverage and become increasingly selective about the opportunities they will lend against.
“The polarisation in pricing between investment stock which is deemed ‘fundable’ and that which is not has become more marked in the last twelve months. In particular, prime investments that are of interest to the institutions continue to attract competitive bidding as well as smaller lots that are within range of the private investor market. This leaves a significant proportion of property that is only within range of those cash buyers who are willing to invest in circumstances where very attractive returns are on offer.
“These circumstances have led to a situation whereby demand for certain types of investment is very patchy. For example, the market for lots of between £3million and £10million with unexpired lease terms up to 5-6 years has seen very limited levels of activity. As a consequence, prices, particularly in the secondary and tertiary locations have fallen to levels that offer some real value to investors willing or able to buy.
“This return to value within the UK property sector is demonstrated by the latest DTZ Fair Value Index which now shows all 20 UK markets are within the ‘hot’ or ‘warm’ category. DTZ’s view is that the negative sentiment towards the secondary assets has over extended and as such those investors with cash who are willing to take on some ‘calculated risk’, are now able to pick up some good value opportunities.
Martin Davis, Head of UK Research at DTZ, added: “We are witnessing steady occupational demand which, coupled with a gradual take-up of existing development stock and those inflationary pressures within the economy at large, could start to have an impact on rental levels. With this in mind, we would anticipate those investors able to acquire at this stage will be able drive healthy returns in the medium term.”
“The UK will continue to provide good opportunities for investors. Not only does DTZ’s latest Fair Value analysis indicate that the UK market has become attractive to investors, it is also out-performing the broader European markets. Further DTZ research has shown that non-prime property is less risky in general than the current consensus view among investors. As they consider non-prime markets more actively, investors should find more attractive opportunities for acquisition.”
