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 150 guests today at The Property Debate event, held at The Bristol Hotel.
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.
Tony McGough, Global Head of Forecasting and Strategy 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.
Nick Allan, Senior Investment Director at DTZ in Bristol comments: “The situation in the South 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, whilst investor confidence suffers under the burden of double dips and Eurozone turmoil.
“We continue to see a polarisation in pricing between investment stock which is deemed prime, the definition of which has narrowed 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 ‘unfinanceable’ and only within range of those cash buyers who are willing to invest in circumstances where very attractive returns are on offer. Much of this stock is in negative equity and until banks force an exit is untradeable.
“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 £3m-£10m 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.
He added: “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. The wider economic picture however gives plenty of opportunity for downside risk in occupational markets.”
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’, held at The Bristol Hotel, in which panellists including, Robert Peto, Chairman, DTZ; Graham Randall, Partner, BDO LLP and Scott Stuart, Managing Director of Regional Real Estate Finance at Santander, debated the key themes to emerge from the report other real estate issues affecting the region.
