02. August 2012 
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Construction crash cemented by new property low
Investment into the nation’s offices, shops and warehouses has fallen to a new low as the UK’s commercial property sector fell behind even Ireland’s this week, signalling fears that recovery could be further stunted. This is the result of the latest quarterly index by IPD. Output in the construction sector crashed 5.2 per cent in the second quarter, following a 4.9 per cent slump in the previous three months in according to ONS estimates published last week. Total returns for investments in commercial property slumped to 0.4 per cent compared to 0.8 the previous quarter, held positive through the inclusion of London.
Now the latest quarterly index by IPD, the benchmark used by investors in commercial property, shows that net investment in property outside of London (including investment, sales, development and refurbishment) was -£161m during the last quarter, negative for the first time since March 2009.
The amount spent on investment, development and refurbishment of offices, shops and warehouses is vital in showing the level of confidence investors have in the future of our economy. A vibrant business sector sees investment into workspace and retail increase – as landlords expect to be able to take on new tenants.
Weak consumer demand and struggling local industries made it increasingly difficult to secure viable tenants outside of London. This means that regional commercial property has been heavily discounted, by up to 45 per cent in some sectors, and with income yields of over 7 per cent. Despite this, investors are still wary of the discounted assets.
Tenant covenant strength, and thus income security, have played a huge role in this. Risk weightings conducted by Dunn and Bradstreet found that 13 per cent, or almost 1bn in rental terms, of UK let tenants are considered high or maximum risk, and the average lease length on a newly let tenant is now under five years.
Of the UK’s cities, Derby, Swansea and Plymouth are the country’s biggest losers in terms of property value decline, with each town seeing values falling by over 40 per cent since June 2007 – though even in Manchester values are almost 40 per cent below their peak.
Now the latest quarterly index by IPD, the benchmark used by investors in commercial property, shows that net investment in property outside of London (including investment, sales, development and refurbishment) was -£161m during the last quarter, negative for the first time since March 2009.
The amount spent on investment, development and refurbishment of offices, shops and warehouses is vital in showing the level of confidence investors have in the future of our economy. A vibrant business sector sees investment into workspace and retail increase – as landlords expect to be able to take on new tenants.
Weak consumer demand and struggling local industries made it increasingly difficult to secure viable tenants outside of London. This means that regional commercial property has been heavily discounted, by up to 45 per cent in some sectors, and with income yields of over 7 per cent. Despite this, investors are still wary of the discounted assets.
Tenant covenant strength, and thus income security, have played a huge role in this. Risk weightings conducted by Dunn and Bradstreet found that 13 per cent, or almost 1bn in rental terms, of UK let tenants are considered high or maximum risk, and the average lease length on a newly let tenant is now under five years.
Of the UK’s cities, Derby, Swansea and Plymouth are the country’s biggest losers in terms of property value decline, with each town seeing values falling by over 40 per cent since June 2007 – though even in Manchester values are almost 40 per cent below their peak.
Fotos: IPD UK Quarterly Property Index
