Property outlook 3rd August 2012

The Cluttons research and commercial valuation consultancy teams have launched the Q2 edition of the Commercial property market update, which reports that turbulent events in the Eurozone drove sharp downward revisions to UK economic growth forecasts during the second quarter and as a result we expect to see virtually no expansion in the economy during 2012.

This backdrop is taking its toll on the property market with the occupational market characterised by inactivity and caution. Investor sentiment has inevitably slipped as a result and we expect outward yield movement across all market segments, with the exception of prime Central London offices and retail. As prices outside the capital adjust to economic and market realities, we expect well funded investors to move to a selective buy position towards the end of the year. T

he report's other findings include:

Average total returns in the office sector in 2012 are expected to be less than half that of 2011, with only Central London maintaining rental growth, albeit as a function of supply shortages rather than improved strength in the occupational market. Outside London, falling rents and rising yields will result in a negative total return this year.

The challenging consumer environment will continue to take its toll on both rents and sentiment in the retail sector. While fashion parks and major regional shopping centres will perform better, we expect yields to increase across all segments of the market during 2012.

The disconnect between the occupier and investment market persists in the industrial sector. Despite weak manufacturing output and exports, the limited development pipeline has renewed interest from underweight funds. Average total returns from the sector over the next five years are expected to exceed the All Property mean, although performance will be highly location and stock specific.