Bidding on UK commercial property remains fierce, and banks are continuing to lend on real estate investment in prime locations, albeit with constricted terms. In addition to prime locations, demand is robust in the commercial retail and the retail warehouse market. For more on this, see the following article from Property Wire.
Strong demand and supply shortages has reversed eight months’ of yield compression for prime UK commercial property assets as bank also reduce their exposure to commercial real estate debt, new reports show.
The average prime yield across all sectors is now 6.2% with further falls expected in the short term, according to the November prime yield investment report from Cushman & Wakefield.
The biggest falls were in the office markets of the Thames Valley and in prime London and regional office markets.
Demand in the office sector is coming from a broad range of investors including UK funds in regional markets and foreign buyers dominating in London.
Bank of China’s purchase of One Lothbury, EC2 for £86 million is the latest high profile example, the report says.
Investors have been buoyed by a firming in sentiment among tenants in the UK’s main office markets as many look to take new space before rents rise again and incentives fall.
An increase in take-up of office space is expected to continue through 2010, albeit at a steady rate, the report concludes.
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Yields in the industrial market are now down to their lowest since August 2008 as bidding becomes increasingly aggressive.
The retail sector has been especially busy with strong demand and an increase in supply from investors ready to take advantage of better pricing where they can.
Demand is focused on prime locations and properties as buyers look to safeguard themselves against occupational risks.
It’s a similar story in the retail warehouse market where strong demand and limited supply have pushed prices up and made potential buyers much more discerning.
‘November saw a continuation of the rapid recovery in the prime market with a still notable imbalance of demand over supply.
Equity continues to flood in from all quarters.
Our market knowledge suggests that there have been at least 100 individual buyers for the 114 deals seen in London’s West End market so far this year for example and we are firmly in a sellers’ market.,’ said David Erwin, CEO capital markets at Cushman & Wakefield.
The commercial property lending boom is over but banks still have faith in property, according to the latest report from De Montfort University.
It concludes that the market is taking its first tentative steps on the long road to recovery.
The report shows that debt secured by the UK real estate sector went down for the first time on record by 0.6%, falling from £225.5 billion at the end of 2008) to £224.1 billion by the middle of 2009.
However, loans in breach of financial agreements doubled in the first half of 2009 to around £30 billion, with £18.6 billion reported in breach of covenants and £11.8 billion in default.
But despite the well publicized problems of a number of key lenders, banks have retained their faith in property.
‘The number of active banks is rising and debt is available, albeit in more limited quantity and at higher prices than previously.
The importance of a handful of German banks and Santander cannot be overestimated,’ it adds.
While many feared large fire-sales of assets as banks called their loans in, this has not happened.
This article has been republished from Property Wire. You can also view this article at Property Wire, an international real estate news site.