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 250 guests today at The Property Debate event, held at the Hilton Manchester Deansgate Hotel.
The 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.
Bruce Poizer, Head of Investment at DTZ in Manchester comments: “The situation in the North West broadly reflects the UK wide scenario with a marked reduction in transaction activity since November last year as the banks continue to de-leverage and become increasingly selective about the opportunities they will lend against.
“We continue to see a polarisation in pricing between investment stock which is deemed ‘fundable’ and that which is not. In particular, prime investments that are of interest to the institutions continue to attract very 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 £3 million and £10 million 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 sectors, have fallen to levels that offer some real value to investors willing or able to buy.
“This return to value within UK property sector is demonstrated by the latest DTZ Fair Value Index which now shows all 20 UK markets within the ‘hot’ or ‘warm’ category. DTZ’s view is that the negative sentiment towards the secondary and tertiary sectors is now overdone and as such those investors with cash who are willing to take on some risk, are now able to pick up some great value opportunities.
Bruce concluded: “In contrast to the investment activity we are witnessing an improvement in the number of occupational enquiries for the remaining vacant buildings 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 drive very substantial returns in the medium term”.
Martin Davis, Head of UK Research at DTZ, added: “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.”
The launch of Money into Property was followed by ‘The Property Debate’, during which panellists including Dermot Power, Partner at BDO LLP and Derek Bald, Divisional Head Real Estate Finance at Santander Corporate Banking, debated the key themes to emerge from the report.
