• Home
  • About
  • 151 IMPACT AWARDS
  • Subscribe
  • Conference
  • Events Calendar
  • Webcast151
  • MOTB
  • Log In
  • Register

Room 151

Impact Awards –>
  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews

John Kelly: ‘New mood of optimism for property’

0
  • by Editor
  • in Treasury
  • — 21 May, 2015

Westfield, commercial propertyAfter a period of disappointing returns commercial property enjoyed a strong revival in 2014. The sector saw a sharp improvement in activity levels and fresh interest from investors keen to lock-in to high yields and depressed valuations in  parts of the sector.

Building on this base, 2015 has started well.  The sustained economic upswing has cemented an improvement in confidence towards a sector where the investment horizon is necessarily long term. There are practical improvements too, with a banking sector both more willing and more able to provide financial support.

The new mood of optimism has resulted in a broadening out of investor interest.  In the early stages of the upswing attention was focused almost exclusively on top quality London assets with secure income streams from long leases.  Now interest is spreading to embrace regional locations and a wider range of asset classes.

Yield compression, a reflection of improved investor confidence and willingness to take on risk, is currently the prime driver of returns for secondary assets and those on short leases.  This is typical in the early stages of an upturn.

However, falling yields are not the only source of rising values.  Less dramatic, but more sustained in its impact, is the effect of rental value growth as valuers begin to factor in rising future income flows.

Realistically, it is too early in the upswing to expect to see this to any extent in secondary areas, but it is now evident in parts of the sector where demand is strongest, for example industrial assets, regional offices and parts of London.

Of course, the pattern is not uniform. Whilst most parts of the sector are noticeably strengthening, in others the pace of improvement is more pedestrian.  The main concern is in the retail sector where there is structural oversupply due to changing shopping patterns and over optimistic expansion in the past. This is inevitably holding back performance.

Unfortunately many of these problems will persist for the medium term. So, whilst there are pockets of value emerging, overall returns from this part of the market are likely to lag the rest of the sector.

Occupier markets have improved although not as rapidly as sentiment.  Void rates are below their peak but still sit close to double figures; lease incentives, whilst less eye watering for asset owners, are still an integral part of most negotiations. We expect the strengthening of conditions to continue gradually in the months ahead.

Looking at potential returns, momentum in the sector is now so well established that we can reasonably expect another year of strong returns. Not at the 20% rate achieved last year, but probably in double figures.  The best performances are expected to come from offices in London and the south east and industrial properties.

John Kelly is head of client investment at CCLA.

 

*Photo (cropped): by morebyless, Flickr

Share

You may also like...

  • TradeRisks breaks into treasury adviser market with Derby TradeRisks breaks into treasury adviser market with Derby 21 Jul, 2016
  • Bonds agency set to drop collective liability requirement Bonds agency set to drop collective liability requirement 27 Mar, 2019
  • Warrington warned over MRP approach ‘risk’ Warrington warned over MRP approach ‘risk’ 7 Aug, 2019
  • PWLB borrowing plummets in wake of rate increase PWLB borrowing plummets in wake of rate increase 5 Nov, 2019

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 1 day ago

    Impact Awards: Liverpool’s cafe culture and Warrington’s investment in homes: The CCLA/Room151 Impact Awards showcase  finance teams with a direct impact on their local communities and the environment. This week we spotlight Liverpool City Council’s… dlvr.it/RxJsKb pic.twitter.com/dEYpaz6HP0

    Room151 1 day ago

    Doing something in #localgov #finance for housing or regeneration? Check out the 'Place Shaping' category room151.co.uk/impact-awards/… sponsored by @31tenConsulting in the CCLA/Room151 Impact Awards. #timetoenter !! pic.twitter.com/dU99vE6Wws

    Room151 2 days ago

    Doing something in #localgov #finance for Adult Social Care & Health? Check out the ASC&H category room151.co.uk/impact-awards/… sponsored by Fundamentum Social Housing REIT in the CCLA/Room151 Impact Awards. #timetoenter !!

    Room151 2 days ago

    Doing something in #localgov #finance for the environment? Check out the 'carbon management' category room151.co.uk/impact-awards/… sponsored by @ACSLLP in the CCLA/Room151 Impact Awards. #timetoenter !!

    Room151 2 days ago

    So what are the seven categories for the CCLA/Room151 Impact Awards? Here they are room151.co.uk/impact-awards/… #localgov #finance #outcomes

    Room151 2 days ago

    Why should LGPS be concerned about rising inflation?: The impact of the coronavirus pandemic, lockdown and wider economic uncertainty created  deflationary pressures which raise important considerations for the Local Government Pension Scheme writes… dlvr.it/RxF7Fs pic.twitter.com/JlcjROBIpz

    Room151 3 days ago

    JOB ALERT: LPFA Finance Director vacancy: London Pensions Fund Authority Finance Director and s151 Officer Competitive salary and benefits The largest Local Government Pension (LGPS) provider in London with around £6.5 billion of assets and 135[...] dlvr.it/RxBdJP

    Room151 3 days ago

    Richard Harbord: Further signs that local government finance is failing: The crisis in Liverpool and a fix for education budgets are further indication that local government finance is in need of a root and branch review. Even for those students[...] dlvr.it/Rx9PSV pic.twitter.com/sAanC2gEyu

    Room151 1 week ago

    Impact Awards: Finance helps launch school meals company and support business during lockdown: The CCLA/Room151 Impact Awards will showcase the way finance teams have a direct impact on their local communities and the environment. This week we spotlight… dlvr.it/RwnlF4 pic.twitter.com/AJhne1MVG4

    Room151 1 week ago

    "This work has made a vital, practical contribution to ensuring people have been supported through the pandemic." #impact #151awards #covid #s151 room151.co.uk/treasury/impac… #impactcasestudies #councilfinancemakesadifference

    Room151 2 weeks ago

    room151.co.uk/impact-awards/ #passiton #localgov #s151 #151awards pic.twitter.com/A0uO0dwBkM

    Room151 2 weeks ago

    Financial pressures loom for 2023 and beyond: Kate Ogden writes the government has addressed most of the short-term Covid-19 financial pressures facing English councils, but problems loom in 2022-23 and the years following. As we enter the[...] dlvr.it/RwfDsz pic.twitter.com/hpv2R09w75

    Room151 2 weeks ago

    Calling all #localgov finance officers and #s151s room151.co.uk/impact-awards/ It's the #151Awards Thanks to the @LGALocalism for helping us get the word out along with all the LA treasury societies. pic.twitter.com/Nkal9BrH1J

  • Categories

    • 151 News
    • Agent 151
    • Blogs
    • Chris Buss
    • Cllr John Clancy
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Forum
    • Funding
    • Graham Liddell
    • Ian O'Donnell
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • LGPSi
    • Mark Finnegan
    • Recent Posts
    • Resources
    • Richard Harbord
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Treasury
    • Uncategorized
  • Archives

    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story Richard Harbord: Post election council tax – revaluation and referendums
  • Next story Chris Buss: Loadsamoney, reserves and de-risking estate regeneration

© Copyright 2021 Room 151. Typegrid Theme by WPBandit.