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Commercial property investment to hit £30bn, says DTZ

2nd September 2005 | back to article listings BACK    print this article PRINT

Investment property agent DTZ has predicted that commercial property investment in the UK will hit £30 billion this year, up on the 2004 figure of £28 billion, as demand across the country continues strong.

Bank of England figures have shown that private investors borrowed £153 billion of private debt during the first quarter of 2005, a 13 per cent increase on the same period of 2004 – the highest quarterly increase since the Bank has ever recorded.

The scale of debt was likely to keep private investors in the market, said Greg Davidson of DTZ, with the recent quarter percent interest rate cut providing an added boost.

"Banks continue to remain keen to lend and private investors are continuing to invest. But the reduction in rates should help maintain a status quo, rather than serve to put more pressure on yields," Mr Davidson told the Newcastle Journal.

"There may be some further yield compression, but not much, and only for property where the underlying fundamentals remain strong."

The North East has seen particularly strong growth said Mr Davidson, with several multi-million pound transactions in recent months, such as the £16 million sale of the Cleveland shopping centre in Middlesbrough and the £45 million sale of Castlegate Shopping Centre in Stockton.

"It is a trend that we are seeing in the North-East. There is a huge weight of money invested in commercial property across the board," said Mr Davison.

DTZ research has shown that institutions such as life companies were net sellers of direct investment property in 2004, a reflection of the shortage of direct investment property opportunities.

Analysts have said that the net investment figures have hidden the real nature of property investment allocations, however, with funds being placed into indirect property investment vehicles over the past two years.

"Over the last two years, institutions have bailed out of direct property, preferring to invest in property through indirect unitised investment vehicles," said Mr Davidson.

"That has not been the case in the North-East, however. In the last 18 months we have seen a number of institutions increase their investment in the region." This was probably due to the availability of property, Mr Davidson said.

One downside to the current investment push in the region were declining rent yields, said Mr Davidson, with yields for prime Newcastle offices falling from 6.5 per cent to below six per cent.

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