A mini boom on prime stock being snapped up by industrial investors may have run its course - but a more diverse range of investors may come to the market next year, according to a city investment specialist.
Nick Allan, head of investment at DTZ in Birmingham, believes that the repurcussions of banks taking control of assets could bear fruit for the investment community in 2011.
“The early signs are encouraging in that there is certainly a more diverse range of investors eyeing the market, with interest in industrial shopping centre and retail warehouse sectors noticeably up,” he said. “As banks begin to release stock into the market, issues relating to shortage of stock will be eased. While property company legacy issues are being addressed, the weakness in the occupational markets will be the major brake on the market and will mean that the secondary and tertiary risk premiums will continue to rise.
“Quantitative easing induced low interest rates mean that annuity style income with long leases and fixed uplifts is currently the hot ticket with pricing back to or even better than at the top of the market.”
His colleague Steve Kirby, a senior surveyor at DTZ in Birmingham, believes 2011 could be a difficult year for the heavily geared looking to refinance deals that were struck at the top of the market.
“Loan to value levels at which banks are willing to lend stabilised over 2010 but are at a significant discount compared to the level obtainable two to three years ago,” he said. “This causes concern to existing bank customers who are unable to obtain comparable terms when the time comes to refinance. The full effect of this scenario will be keenly viewed during 2011.
“Speculative development funding is non-existent with pre-let developments experiencing difficulties in obtaining funding. The fragility of the occupational property market is not assisting the ‘risk factor’ that is inherent within any property development appraisal. This is making some schemes unfundable or leads the banks to suppress land values, which in turn, is stalling land transactions.
“We anticipate further bank balance sheet repair over the course of 2011, especially once the Irish government has digested the full extent of its property holding, having taken control of the property debt of failed Irish-based institutions. We anticipate this will represent an opportunity for cash rich property developers and investors during the course of 2011.”
On the ofice front, DTZ’s David Tonks, believes canny occupiers will be the main market driver for 2011.
“The absence of substantial new development within central Birmingham means that the supply of grade A accommodation will continue to fall over the next three to five years, causing larger occupiers with a lease event during this time to actively consider their strategy in 2011,” he said.
“Active demand in the market suggests that consolidation will be the key driver of demand. Those organisations with a lease expiry or break clause in the next 12 to 24 months are frequently able to take advantage of current market conditions and relocate their staff into better quality accommodation that offers increased flexibility and improved profile for the business.”