While UK commercial real estate has taken a beating over the last couple of years, declines accelerated a bit from Quarter 4 of 2008 through Quarter 3 of 2009. While some analysts see signs of recovery, and GDP growth continues to improve, there are some challenges.
• A great deal of commercial real estate investment is fueled by equity market performance. With the great volatility in European and American equities markets, it’s unlikely to help in a movement of funds into commercial real estate in the UK.
• It’s very difficult to find a bank that isn’t focused on repairing their balance sheets. This makes leverage more difficult, and borrowers must look longer and work harder for loans.
However, even considering the challenges, there are bright spots. Sentiment in the property derivatives markets is improving, with an expected 10%+ improvement expected in 2010. Month over month investment activity continues to increase, mostly from foreign investors in the London area and to some lesser extent in the regions.
While nowhere near the boom levels of 2004 into 2007, propertydata.com has published preliminary data showing that investment market activity was 27% higher in May than in April. This is a reasonably strong report when compared to past years. April and May showed increased activity by foreign investors, mostly European, but also more investing from UK-based institutions. Publicly listed real estate companies also contributed to investment during the same period.
While this increased activity is a positive sign for the future, net lending flows were negative in May and expected to continue into the months ahead, perpetuating the five quarter negative trend. Banks are still highly exposed, and focused on improving their financial performance and balance sheets. With the situation in Greece and other negative news, risk aversion is the norm, with net sales of equities and net purchases of UK government bonds.
As in the U.S., lenders have been delaying action against borrowers behind in debt repayment, hoping that a turn-around will bring a healing allowing avoidance of default and foreclosures.
With retail sales rebounding, it is expected that the UK economy will show expansion in Q2, and possibly the next quarter. While the job market is still in the doldrums, the soft economic activity that goes along with it helps to keep interest rates low. The expectation is that this trend will remain into 2011.
This mix of financial positives and negatives still seems to point toward modest improvement, but only time will tell.
By www.holprop.com (July 13, 2010)
Property for sale England | England (UK) holiday rentals | UK monthly rentals