Investment market: Opportunity or reality check?

THE BUSINESS DESK.COM
1 December 2010

By Ian Briggs - Deputy Editor Yorkshire



FOR many in the Yorkshire commercial property market, 2010 has been a year of uncertainty as a succession of major political announcements have led to stalled market activity.

But have austerity measures, a lack of speculative development and restriced bank finance offered an opportunity for canny commercial property investors? And what does 2011 hold for the investment market?

Deputy Editor Ian Briggs asked a number of property professionals for their views.

Matthew Atkinson, associate director, national investment, at Jones Lang LaSalle, based in the firm's Leeds office, said current market conditions presented an opportunity for high new worth individuals who are active in the market but he warned that with banks still being careful on lending stock levels would be restricted.

"The funds are being very selective and their funds are being used on prime assets across all sectors. Some institutions have opportunity funds across the risk curve. From a funds perspective they're a little bit cautious about pricing.

"Yields are also at new historic levels so now is the time to buy."

Mr Atkinson highlighted the sales of the Midpoint Business Park in Bradford and 1 Victoria Place in Leeds as positive signs for the market and said investment opportunities stille existed for the canny buyer.

Henrie Westlake, head of investment at Knight Frank in Leeds believes the Yorkshire and wider UK Investment market has been dominated by three main factors during 2010.

These are a resurgence of private buyers investing in commercial property, driven primarily by low saving rates; a significant rebound of prime property pricing but an increased differential between prime and secondary values; and renewed risk aversion largely driven by the perceived impacts of public sector consolidation.

Mr Westlake said: "An increased number of buyers both private and institutional have driven the transactional side of the property market through this year.

"As the year has advanced, buyers have become more selective as concerns over the occupational markets have magnified.

Investors are extremely wary of exposure to any vacancies.

Notwithstanding that we are entering an uncertain period, property should continue to provide a relatively safe investment, with the benefit of attractive income returns. What must not be forgotten however is that property is not homogenous and the prospects for ostensibly comparable buildings can be very different."

James Lawlor, senior surveyor, investment, at DTZ in Yorkshire, said 2010 has been a busy year for investors and investment agents as the significant weight of institutional cash, which hit the market in autumn 2009, continued to be its driving force.

Mr Lawlor said investment transactions this year, including the sale by London & Stanford of 1 Whitehall Riverside, MEPC’s sale of Benson House and Gatehouse Bank’s acquisition of One Sovereign Street, all in Leeds, proved activity was positive.

He said: "Along with regional offices we have also seen significant investment in the region’s distribution and industrial investment markets. In the earlier part of the year, and as the market continued to harden, we saw a number of investors looking into the good secondary market to drive greater returns given the then recent hardening of yields.

"In addition, some of those investors who bought 12 to 18 months earlier at the bottom at the market cycle have sold their acquisitions on, commonly for very sizable profits.

Mr Lawlor said in the second half of this year a number of institutional investors have centred their requirements on the markets of Central London and the South East, resulting in a softening in regional pricing.

He added that next year will remain challenging with investors continuing to reflect the risks of tenant covenant and void costs in their bids as they appraise property assets.

David Watson, investment partner at WSB in Leeds, said invesment activity levels had continued to rise in 2010.

Mr Watson said: “The return of institutional investors has boosted overall market activity in the first three quarters of this year, resulting in overall transaction levels reaching £21bn in the nine months to the end of September.

"With the final quarter of the year still to be accounted for, it appears that this year’s total activity will outstrip both 2008 and 2009 transaction totals. This is a significant movement for the market given the continued lack of debt finance available for investors.

“The secondary and tertiary markets are witnessing further softening and we believe this is a trend that will continue into the early part of 2011. The supply of stock in all markets remains low and there is a strong potential that, when market conditions start to improve, the recovery will manifest itself in a steep increase of both rents and values which makes it a great time to be buying property assets in these markets."

Andrew Wilkinson, Sanderson Weatherall’s head of northern investment, said he believed Yorkshire's investment market was holding its own but everyone should look to the future of the market.

Mr Wilkinson said: "We have seen what can better be described in retrospect, as something of a stabilising of the market I would say in the period from quarter two to quarter three. Not particularly great cause for celebration as deal volumes barely scratch the surface of historic highs and I think therein lies the problem. Less of a problem the optimist might say, more of a reality factor?

"The market is not really depressed because the market is the market and by its nature it weaves and twists in tune to the wider economic agenda and circumstances. We as a business would say that 'this is life for the foreseeable future', so we all must stop making comparisons with more buoyant times and get on and deal with the future.

Make no mistake, the turmoil evolving in Ireland this week appears again to be another "titanic", moment, the tip of an iceberg and the repercussions for confidence in the market are likely to be reflected in more pondering, waiting and less doing as our European neighbours own up to their years of 'growth' and the European Union decides what to do with the Euro."