Investor appetite for property asset class defies downbeat view of economic woes

All groups surveyed are looking to increase their exposure to residential healthcare by the end of the year. Small businesses currently have the highest exposure to the sector at around two and a half per cent of their portfolios, while medium-to-large advisors and major businesses are planning the largest increases of exposure by the end of 2012, both doubling from less than one per cent currently, to almost two per cent.

Lynda Shillaw said:
“There is currently under-capacity in the London hotel market, which may explain the appetite for this sector among London businesses, but I would expect investment to be very selective. Healthcare represents a big opportunity in light of NHS reforms, but the market is still developing and there are reputational risks for investors given the nature of the asset. I do however think that this is a sector that will see more entrants from experienced investors and operators from other parts of the world over coming years”

Big firms and London investors expect pick-up in activity
After last quarter’s improvement in sentiment, there are now mixed feelings over the outlook for the UK property market. Only London-based medium to large businesses and major companies expect a net upturn in market activity. Thirty nine per cent of London businesses and 27 per cent of major businesses expect market activity to pick up. In contrast, fund managers remain the most downbeat about the prospects of the UK property market, half (50 per cent) expect market activity to slow down in the coming three to six months.

Fund managers are most downbeat on their own sector’s prospects
Major businesses and London-based medium to large organisations expect an improvement in their own business sectors, with 27 per cent of major businesses and 31 per cent of London businesses predicting a pick-up over the next three to six months. Fund managers remain the most pessimistic out of all the groups with only 10 per cent expecting their own sector to pick up compared to the 36 per cent who predict a slowdown. Outside London, 21 per cent of medium to large businesses expect their sector to pick up.

Andrew Smith, Chairman of the IPF Research Steering Group and Global Head of Property at Aberdeen Asset Management commented:
“Fund managers remain pessimistic regarding shorter-term prospects in a property market faced with a cocktail of difficulties: economic woes suppressing letting markets; constrained bank lending activity, aggravated by the European sovereign debt crisis; and weakening capital values, particularly for secondary assets. However, some see scope to take advantage of an arbitrage opportunity afforded by depressed asset pricing in the current market. This is signalled by a majority of fund managers looking to increase fund allocations to real estate over the next six months. At the sector level, the expected performance of private residential investment remains at the forefront, followed by industrial property, which continues to generate a good running yield compared to other asset classes, despite downward pressure on income arising from the weakened occupational market.”

Cool expectations on portfolio performance
Only major companies, medium to large advisors and fund managers show an improvement on the previous quarter’s survey regarding their portfolio performance, although fund managers remain firmly negative. Forty two per cent of major businesses expect their portfolio performance to increase with none expecting a decrease in the next three to six months.