UK Property Investment market remains ‘stressed’

But investors are still on the look out for prime central London offices say Colliers

Article posted: 04 May 2011

Despite the appearance of relative price stability with little change in capital values over Q1 2011, the UK property investment market remains highly stressed, according to the latest Real Estate Investment Forecast from Colliers International, with demand for institutional grade assets outstripping supply by a wide margin.

Foreign and domestic funds are well capitalised and are looking to increase exposure to property to diversify investment portfolios. Foreign private investors continue to pursue ‘safe haven’ and ‘wealth preservation’ strategies in response to political and economic instability worldwide.

IPD reports that total returns for All Property reached 15.1% in 2010, mainly in response to yield driven capital growth. Equivalent yields fell by 70 bps from 7.8% to 7.1%, generating capital growth of 8.3.

In 2011, total returns are forecast to fall to 8.0% as limited yield compression on the basis of fewer prime transactions means that capital values will grow by only 1.8%. Gilt rates are expected to remain low in 2011 and 2012 and will give scope for further yield compression.

Investors are still watchful for opportunities to acquire office space in Central London. Dr. Walter Boettcher, Director of Research and Forecasting at Colliers International commented: “Prime Central London offices are still a central target of institutional investors, both domestic and foreign. Foreign investors continue to take the 'lion's share' of the Central London market by outbidding domestic investors.”

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Posted by Janet