Cluttons predict 12th December 2012

Cluttons has predicted that commercial property sector secondary values will continue to fall in 2013, reflecting dwindling investor demand. In its Q3 Commercial Property Market Outlook, Cluttons reported that persisting economic uncertainty and knocked business confidence continues to transfer poor performance to the property market, impacting on returns.

Capital values have fallen accordingly, however it is becoming evident that a further reduction is needed to attract investment in relation to regionally located secondary assets. Sue Foxley, head of research, Cluttons, said: “Apart from a narrowing band of assets still considered as prime, wholesale re-pricing is well underway. However, there remains a wide void between the perceived pricing of buyers and sellers and we believe this process still has some way to go.” Cluttons has also reported that, as yield returns begin to draw to a close for investment focused on prime Central London offices, the potential of secondary stock and alternative asset class investment is beginning to surface.

The industrial and distribution sectors have been earmarked as ‘rising star’ sectors which will attract renewed investor interest in 2013, while average office property returns are expected to continue to struggle. The retail sector is also set to suffer further as home shopping gains increasing popularity. Cluttons has reported that retail rents outside of London and the south east will fall by a further 2% in 2013, following the 4% decline anticipated this year. This, coupled with limited stock availability, is likely to boost further investor interest in the industrial and logistics sectors as overseas investors and UK REITs review the market for opportunities.

Foxley added: “Despite falling occupier confidence, investor interest in industrial assets is steadily growing. We have found that total returns for industrial properties averaged at just over 4 per cent in 2012. However a supply–demand imbalance is likely to underpin investor interest, particularly in London and strong south east locations. This provides a positive outlook for 2013 with yields for the strongest distribution sheds remaining stable.”