Property Investment Supply To Increase 2010 But Dont Expect Floodgates
Wednesday, 09 June 2010
According to GVA Grimley's latest market research, the remainder of 2010 will see an increase in property investment supply. However, those expecting a significant increase in available stock can think again.
The report entitled "Property Investment - Where's the supply going to come from?" highlights that this year will see more properties entering a default scenario. However the majority of 'distressed' properties will be of secondary/tertiary quality, as these will have the weakest covenants and be harder to re-let. 'Forced sales' by the banks of such properties should be the exception rather than the rule, and investor demand remains focussed towards the prime end of the market.
Banks are more likely to sell any prime properties they hold that are distressed, as this is where values continue to see the most recovery, but such assets are less likely to be distressed than secondary/tertiary assets. As a result, the actual amount of high quality property released will be limited.
Despite the view that banks will start releasing increased numbers of distressed property, they will remain in a position to turn the tap of properties coming to the market on and off as and when they see fit.
Richard Walsh, director of Capital Markets at GVA Grimley's Leeds office, comments: "Assets will be released in a controlled manner, in line with the considerations of individual properties, portfolios and market conditions. As such this will mean a steady flow of properties entering the market over a period of several years. A flood of properties entering the market through this route appears unlikely."
The public sector has long been viewed as an obvious solution to unlocking investment supply. The three billion worth of central government asset sales announced in the 2009 budget will generate a degree of high quality supply, but this remains the exception to what will primarily be lower quality secondary or tertiary assets.
Walsh continues: "Despite government announcements appearing to indicate a desire to raise funds through property sales, local authorities, health trusts and central government departments are not likely to immediately increase disposals above current trend levels."
With significant pressure for deep cuts to government spending, the need to make the most efficient use of public sector property is becoming a priority. A renewed drive to improve property asset management may also result in a significant increase in disposals over the medium term. But the types of assets and locations of sites that become available will have only a limited impact upon the commercial investment market.
There remains a huge untapped potential for public sector property disposals. The formation of the government's central property function and the adoption of the 'total place' initiative may influence local authority property asset management, promote efficiencies and encourage greater disposals.
However, even then, many of the assets considered for disposal are likely to be older, smaller, sub prime properties with limited appeal to the private investment sector.
The findings conclude therefore that we're in for a very 'slowing-burning' investment supply line, at least in the short term. For further information on "Property Investment - Where's the supply going to come from?" visit http://www.gvagrimley.co.uk/.
GVA Grimley Ltd
GVA Grimley Ltd is one of the UK's leading firms of property consultants operating from 12 offices with 890 fee earners generating a turnover of £137.3 million year ending 30th April 2009.
The firm provides a full range of property-related services including agency, planning and regeneration, rating, building consultancy, investment, management and valuation consultancy. GVA Grimley also offers specialist advice in areas such as telecomms, education, healthcare, retail, contamination, plant and machinery and the automotive and roadside sectors.
GVA Grimley is a founding member of GVA Worldwide, an international organisation of real estate industry leaders serving key markets in over 25 countries. The organisation is comprised of more than 2,500 real estate professionals in over 85 markets worldwide.
A leading advisor in commercial real estate, GVA Worldwide optimises client portfolios locally and around the world. It serves the real estate needs of clients including multinational corporations, major space users, developers, owners, institutions, lenders and investors. For more information, visit http://www.gvaworldwide.com/