Global real estate services firm, DTZ, part of UGL Services, a division of UGL Limited (ASX: UGL), revealed the findings of its flagship ‘Money into Property 2012’ report to over 180 guests at a breakfast event held at Cardiff City Stadium.
The report revealed that UK invested stock shrank 1% to £537 billion in 2011, while other major markets on the continent and elsewhere grew. 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.
Head of DTZ’s Cardiff office, Senior Director, Rhys James, opened the event with an overview of the different occupier markets within South Wales and how they had performed during 2011.
“2011 was, in many ways, something of a frustrating year in the South Wales property market,” Rhys James. “In each sector of activity there were examples of exciting transactions taking place but they tended to be very much the exception rather than the rule and there is still an underlying lack of confidence in the market.
Tony McGough, Global Head of Forecasting and Strategy Research at DTZ, presented the findings of DTZ’s flagship ‘Money into Property 2012’ report. Despite a 10% fall in investment activity in the UK in 2011, primarily due to a lack of debt availability and a mismatch in pricing expectations between vendors and potential buyers, Tony was generally positive about future opportunities:
He said: “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. It is expected that in a crowded prime market, more investors will consider or may be forced to look outside of prime. As they consider non-prime markets more actively, investors should find more attractive opportunities for acquisition.”
Nick Allan, Senior Investment Director in South Wales and South West gave an overview of the regional investment market: “The situation in the South Wales broadly reflects the UK wide scenario with a marked reduction in transactional activity since the 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 £3-10 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 locations, have fallen to levels that offer some real value to investors willing or able to buy.”
The final part of DTZ’s presentation was given by Richard Murphy, DTZ’s Senior Director of Professional and Valuation services in Cardiff and a registered Law of Property Act Receiver, who commented on the banking sector.
Richard said: “The absence of a fully functioning debt funding market targeting real estate continues to be the main influence on property market performance. The ‘capital is king’ approach being enforced by the banking sector regulatory authorities will further influence lending behaviour in 2012/13. With the cost of holding non performing loans affecting balance sheets, we expect to see greater volumes of property stock coming to the market.
“Whilst a proportion will be direct from Banks, via LPA Receivers and Administrators, we expect to see the churn of assets by the much publicised purchasers of loan books, who were very active in 2011. These purchasers have bought the debt at a discount and will quickly identify both individual assets with limited prospects and those on which they can make a return quickly. The result will be more property assets coming to a poorly funded market.”
Rhys James concluded the presentation: “We expect 2012 to continue in a similar vein to last year but with the Welsh Government needing to bring its influence to bear and particularly to attracting new development activity within the different designated enterprise zone areas around the country.”