New research shows commercial property prime yields show signs of stabilising for the first time in two years, with “buy” signals also returning to parts of the market for prime assets.
According to valuation experts at CB Richard Ellis in Birmingham, during the second quarter of 2009 all property rents continued to fall, decreasing by 4.4 per cent overall.
But researchers for the firm found average prime yields fell by 13 basis points during the same period, while demand for secondary stock remains subdued with the exception of small lots that meet the requirements of individual investors who are cash buyers.
The retail warehouse sector led the yield compression, with prime bulky goods yields in particular showing the greatest change, moving in by 40 basis points over the quarter.
Much of this adjustment occurred in the latter half of the quarter – a trend that appears to be continuing into the third quarter, according to CBRE.
The perception that there is some stability returning to the housing market has lead to renewed confidence in the security of certain business sectors, such as DIY operators. These operators occupy retail warehouse stock that has undergone some of the largest reductions in value over the last 24 months.
James Harris, a senior surveyor in CBRE’s valuation advisory team, said: “The economic environment has continued to dictate the changes in the commercial property market over the second quarter of 2009. Unsurprisingly, average commercial property rents continued to fall in the second quarter.
“It is encouraging, however, to note that yields have stabilised this quarter and even fallen in some sectors for the first time since the market peak in June 2007.”
In the office market, rents continued to fall, dropping a further 6.4 per cent in the second quarter of the year. Major regional office centres, however, saw little or no yield softening over the period, significantly slowing the aggressive capital value corrections of the previous 24 months.
Prime retail rents also continued to deteriorate over the quarter, falling 6.2 per cent. Prime shop yields remained broadly unchanged, benefiting from smaller lot sizes and higher market liquidity.
All industrial rents fell by 1.9 per cent on average over the quarter. Industrial yields also remained stable over the quarter but show the largest correction from peak at around 310 basis points.
But despite some encouraging signs, Mr Harris said the availability of credit remained an issue for investors.
He said: “Most activity in the current market is being driven by cash purchasers looking for a home for their money that offers far healthier returns than bank deposit accounts and relative safety compared to volatile equities.
“Larger property companies are facing difficulties.”