The eurozone crisis, economic uncertainty and limited bank lending will continue to hit commercial property activity in the West Midlands for the rest of the year, according to a new report.
But investors are moving towards the prime end of the market, particularly in offices, meaning that average deal sizes have nearly doubled over the previous quarter.
Although investors are returning to the market in London and the south east, activity in the rest of the country continues to be restrained, according to Lambert Smith Hampton’s latest quarterly analysis of the market – UK Investment Transactions Q3.
The report also identifies a move away from traditional asset classes into other areas, particularly hotels and leisure.
Adam Ramshaw, associate director in the Birmingham office of LSH said: “The continuing uncertainties in the eurozone and the future of the UK economy have resulted in a decline in sentiment among property investors. Declining market sentiment means investors will continue to focus on the prime end of the market. The economic situation means investors are still cautious when it comes to either secondary assets or prime assets in less desirable locations.”
He added, “While the market is subdued, a lasting solution to the eurozone debt crisis would provide a much needed fillip, increasing confidence and acting to reduce some of the negative sentiment.
“We are seeing a move towards non-traditional areas of the market, such as leisure. A good example of this is Legal and General’s hotel portfolio acquisition which included Malmaison in Birmingham and Aprirose REI’s acquisition of the De Vere Village Hotel in Walsall.
“Another issue which continues to affect the market is the availability of debt.
“The lending parameters employed by banks remain tight, and while it is certainly possible to borrow money from the banks, it remains a more difficult prospect than before. New regulations coming in will also have an effect on the availability and cost of debt from banks, although it is conceivable that insurance companies could step in to fill some of the gap.”
But he added, “The good news is that new funders are entering the market and with the right advice, finance can still be found despite the reluctance of the banks.
“In addition, we are seeing investors return to the market in London and the south east, so we look forward to that sentiment spreading to the rest of the country.”