UK - More banks will offload their real estate assets via joint ventures with property companies - then drip feed those left over, according to John Danes, Aberdeen's head of UK research and investment strategy.
"Banks have insufficient experience to manage properties themselves and they see joint ventures as a good way to exit their assets," he said. "Property companies can work the assets and they're keen to acquire more of them."
Meanwhile, the likelihood of banks flooding the market with assets they've so far held onto has largely receded, according to Aberdeen. At the start of the year, the fund manager had been concerned about an asset dump. "That is no longer an issue," said Danes.
He said an increase in capital values of 10-15% "has gradually reduced banks' problems". He added: "Shortage of product is the problem, rather than that there is a glut of it. Banks are more likely to drip-feed property on to the market than to dump it."
In a quarterly forecast for the UK market issued last week, Danes projected a total return of 16% in 2010, largely driven by capital growth in the first half of the year. A subsequent slowdown in 2011 will echo the mid-1990s correction, which also followed a sharp upturn in capital values over the previous two years.
The pace of decline in rental values has fallen from an annualised 12% in spring last year to 2% in the same period this year. The stabilisation in rental values - especially given the relatively weak economic recovery - remains largely the result of supply constraints.
Danes expressed optimism for the occupational market because the development pipeline had been switched off. With construction at an historical low, he said, shortages were emerging at the prime end. "Availability is coming down and rental is going up in central London. It usually takes longer for rental to pick up when you're in recovery from recession."
Prime rents in central London have started to increase as vacancy levels drop, with yields in the City of London currently at 5.75%. "Upward pressure on prime rents is returning and incentives are falling sharply," said the note - with the caveat that in the rest of the UK rental values are still in modest decline. As a result, central London office will continue as the best-performing sector over the next five years.