UK Commercial property experts fear fickle real estate rebound

Mon Jan 25, 2010 5:38am EST

* 'Two-tone' recovery could arrest market growth

LONDON, Jan 25 (Reuters)- Less than one in 20 UK commercial property experts believe a fast-paced recovery in asset values will continue in 2010, while tenant demand and rental growth remain under pressure, a survey out on Monday showed.

Benchmark data in the latest Expert Panel survey, by online real estate portal Reita, shows average commercial property values have gained about 9 percent since July, although this has been driven by prime quality, well-located buildings.

Some investors fear values of secondary property in less popular areas may take up to 18 months to catch up with soaring prices in locations such as Mayfair and the City financial district, both in London, the survey showed.

Experts also worry measures taken by government to curb Britain's rising national debt could exacerbate this 'two-tone' rebound by compressing tenant demand and rental growth.

"The only economic certainty is that public spending will be severely cut by the next government and that people will have a lot less money to spend as a result," Peter Cosmetatos, director of Reita, said.

"This will undoubtedly have an impact on business and on the take-up of commercial space. With that in mind we should tread very carefully when making any predictions over long term market recovery this year," he said.

Reflecting this pessimism, fifty-seven percent of the Expert Panel said they did not expect to see a fall in secondary property yields before 2011, up from 29 percent in the last survey.

Forty-eight percent of the respondents expect returns for listed property firms to be slightly worse than direct property over the next 12 months, up from 21 percent last September.

Last week, the UK real estate sector was the worst performing equity sector at minus 4 percent, with UK REITs showing returns of minus 6.5 percent in the year to date compared to minus 1.7 percent for the FTSE All Share index, analysts at Nomura said.

"Rental values outside the prime areas will continue to slide and banks will carry on being highly selective in their lending activities as they work to shore up their balance sheets," said Patrick Sumner, chair of Reita and head of property equities at Henderson Global Investors.

Reita's Expert Panel consists of leading industry experts from more than 30 different organisations and firms, including Blackrock, Credit Suisse, Deloitte, Land Securities (LAND.L), Liberty International (LII.L), Nabarro and Segro (SGRO.L). (Reporting by Sinead Cruise; Editing by Andrew Macdonald) (See www.reutersrealestate.com for the global service for real estate professionals from Reuters)