Research by the CBRE, one of the world’s leading commercial property advisers, suggests that commercial property values have ground to a halt in November, but that the increased involvement of insurance companies might make a difference. According to the CBRE’s latest monthly index, last month’s capital value returns registered at only 0.4%. This makes total returns for business property at 7.6% for 2011, with capital growth of 1.9%. Central London property has performed consistently, although the wider picture has seen only shops and retail warehouses avoid falls this month. London office and retail performance has offset falls in rent elsewhere to ensure that rents remain flat across the board.
Nick Parker, senior forecasting analyst at CBRE, described the results as unsurprising given the signs of deterioration, and noted that investors were becoming ever more focussed on prime property:
“November was the first month this year where more widespread weakness started to creep into the UK property market performance with more real estate sub-sectors seeing capital value falls than gains. “Given the wider economic uncertainty caused by weak fundamentals in the UK economy plus the growing threat posed by the Eurozone, it now seems that investor appetite has once again become more narrowly focused on the super-prime end of the quality spectrum at the expense of assets further up the risk curve.”
However, the competitive presence of insurers, CBRE notes, offering better loan-to-value deals and better margins, has propped up real estate activity and could account for as much as 20% of commercial property lending in the future.
Insurance companies have progressively increased their share of real estate lending after retail banks began showing signs of reluctance. With the number of business property lenders actively lending down in 2011, it is hoped that the impact of insurance companies evolves beyond the prime end of the real estate market, which is where their lending capacity is largely based at present.
Carlo works in the real estate sector and writes about investments and commercial property in London and in the UK. He likes industrial architecture, nature and traditional british food.