Experts say it is still to early to expect a prolonged property market recovery in 2010 despite encouraging signs continuing from last year.
The latest Commercial Real Estate Review by Birmingham accountant BDO showed that although the number of commercial transactions increased during the year, experts believe several key underlying factors will continue to cause turbulence in the sector for much of the year.
“Although we are seeing higher investment returns and a more stable tenant market, we still have a long way to go before we are at the number of transactions that we saw pre-recession,” said Mark Anslow, lead partner at BDO.
“The combination of an election year, which is bringing considerable uncertainty across industry sectors, coupled with continuing fears about unemployment and consumer spending, and concerns over rising taxes later in the year all have the potential to undermine the commercial property market.”
The pickup in real-estate valuations has been fuelled by international buyers taking advantage of cheaper prices and the weakness of sterling.
However, investors as well as lenders still are focusing on prime properties, with secure and long-term income streams, which are in short supply. While prime property values are expected to hold up better in 2010, secondary property, those with less resilient income streams, shorter leases or in less-desirable locations, may fall further.
Another factor which has the power to derail a recovery is the fact that banks are releasing property slowly into the market, resulting in too many investors chasing too few properties. A huge raft of property is also due to be re-financed in the next 12 to 18 months, which will put additional pressure on bank balance sheets.
“For all of these reasons, we believe that it will be a long slow recovery in the market,” explains Anslow. “There is increased lending and debt is available, although in more limited quantity and at higher prices than were previously seen. Also, development activity showed signs of improvement towards the end of 2009 with a net balance of developers and contractors reporting increased trade for a fifth month in a row. So there are reasons for some optimism.”