Volumes head towards 2006 levels

The weight of money targeting property is at its highest in eight years.

6th March 2015, words by Marie Hickey

 

■ Prime yields would appear to have reached a point of stasis with all of the 13 sectors that Savills monitor reporting no yield movement. For five of the sectors it was the fifth consecutive month of zero movement.

■ In fact some markets have seen the downward pressure reverse due to wider market conditions and/or investor sentiment that yields are perhaps too steamy in light of the property fundamentals. Foodstores are a prime example with a 25 basis points (bps) softening in January. Retail Warehouses, both open A1 and restricted, are now starting to experience upward pressure although outward shifts have not yet materialised.

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Graph 1

■ This levelling out in prime yields has taken place despite the fact the weight of money targeting property is at its highest level in eight years. Net inflows into institutional and retail property funds totalled £4.5 billion in 2014 with similar levels expected this year.

■ The general consensus is that further hardening in the prime segments will be relatively limited going forward particularly for those sectors where yields are at, or close to their 2007-08 nadir. However, for those 'trophy' assets that appeal to overseas investors further yield compression is expected.

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Table 1

■ So if there is restrained opportunity for further yield hardening in the prime segments where can investors find value uplift? The hunt for value, stronger prospects for value growth and the need to allocate funds means that investors are likely to become less risk averse. As a result, we expect to see a growing interest in good quality secondary assets in strong regional cities and 'alternative' sectors. Prime assets when they become available will of course remain highly attractive, but for others it will be the attractiveness of the pricing that will be the real turn on.

 

 
 

Key Contacts

Marie Hickey

Marie Hickey

Director
Commercial Research

Savills Margaret Street

+44 (0) 20 3320 8288

 

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