Prime yields in August fell to an average of 5.66 per cent, their lowest in over five years, while third quarter investment volumes so far are nearly a third higher than at the same time last year, according to Cushman & Wakefield.
It is not yet clear of course whether the market will deliver enough opportunities to build on this momentum but the signs are promising. Along with brighter economic sentiment and a better supply of finance, higher pricing may lead to more stock coming available and hence the upturn in activity should be sustained. Indeed, our latest projections have already edged up, with 2013 volumes now forecast to be over GBP40bn, 15 to 20 per cent ahead of consensus at the start of the year.
Aside from higher pricing and debt availability, more risk tolerance is also helping spread activity in the market, with more interest in development and taking some degree of occupancy risk as well as in looking at second tier assets- albeit preferably still in prime or near prime locations and only where the pricing is judged to be realistic.
London offices, shopping centres and now industrial are clearly seeing higher secondary demand but all sectors have in fact seen an improvement, with secondary supply and demand coming more into balance, helped by real signs of a spreading of finance availability.
Occupiers too are generally facing a supply shortage, at least for the quality of space they are seeking, and this is bringing more stability to rental levels. However as well as putting pressure on rents and/or incentives, it is also encouraging occupiers to make compromises, looking at good quality secondary availability for example, or taking more risk, perhaps via a pre-let.
London shops and offices remain in the rudest health, with City demand buoyed by an improved occupational outlook. Regional offices are also in a stronger position, still with a Thames Valley focus thanks to overflowing demand from London. Industrial meanwhile has the most marked supply and demand imbalance in the logistics sector but growing interest is also evident for multi-let estates.
Retail faces a more mixed but still improved environment, with interest across the spectrum now for shopping centres, active retailer demand supporting the prime high street market and more opportunities seen to be emerging in the retail warehouse sector.
David Erwin, Cushman & Wakefield’s chief executive of UK capital markets, says: "The improving investment market continues to gather momentum and the last month has seen yields fall in a number of subsectors, particularly in the shopping centre arena where cash remains readily available for well-priced schemes of every grade.
“We anticipate a busy last quarter for investors and their advisors and would expect annual turnover figures in the UK to comfortably exceed GBP40bn, a figure 15 to 20 per cent ahead of consensus at the start of the year.
David Hutchings, Cushman & Wakefield’s head of EMEA research, says: “As the economic mood has brightened investors have steadily grown more tolerant of risk – looking firstly at taking occupancy risk in core areas but now ready not just to stray from the core but also to consider less liquid second tier markets or poorer quality space in good locations. A modest if still cautious improvement in occupier sentiment is helping shape this adjustment but the key ingredient to generate demand is getting the price right – and hence the ability of the UK market to re-price itself has again proved pivotal to making sure the market was ready for recovery.”