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Regional office markets upgraded in DTZ Fair Value Index
UK prime property markets offer better value for investors in Q2 2011
Article posted: 24 Aug 2011
The UK prime property markets now offer better value for investors than in Q1 2011, according to DTZ’s latest Fair Value Index report. The index, which offers insight into the relative attractiveness of current pricing in the UK property markets, has improved significantly, with the score for Q2 2011 rising to 50 from 28 in Q1 2011.
The rise in the score follows two consecutive quarters of declining scores and reflects the fall in bond yields in the UK witnessed in recent months. Yields had risen over the six months to the end of Q1 2011, but weakening confidence in the economic outlook has resulted in lower yields, with the UK five-year bond yield currently standing at 1.4%.
The resultant marked shift downwards in required returns is likely to underscore the appeal of the solid income returns offered by prime property amidst a clouded economic outlook. While capital growth is expected to be subdued in coming years, and there are downside risks, most retail and office markets are trading at yields of around 5-6%. This offers a substantial premium over bond yields, which sat at just over 2% at end Q2, and have since fallen significantly further.
In Q2, the market for office space in Newcastle was upgraded from COLD to WARM, this was also the case for office space in Manchester, Leeds and Birmingham as well as for offices in Bristol.
Tony McGough, Global Head of Forecasting & Strategy Research at DTZ said: “With bond yields compressing, and increasing stock market volatility, prime property in the UK is now relatively more attractive. It offers higher income yields and a broadly stable capital value outlook going forward.”
Posted by Jules
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