GLOBAL - Institutional investors are mobilising capital for core and core-plus acquisitions at the top-end of secondary markets as clearing gets underway, according to Cushman & Wakefield's latest UK Market Beat report.

Up to now, low interest rates have allowed banks to delay reporting valuation losses against their balance sheets.

But the absence of the hoped-for speedy economic recovery and the "strong possibility" of an interest rate hike later this year will add impetus to long-awaited clearing of secondary investment markets.

Despite investors' acquisitive mood, 2011 will be "at best a year of consolidation" following last year's strongest performance in four years, said the report.

The trend is toward a steady decline in returns across all sectors, with thrifty tenants hampering rental growth in the office market and fragile consumer demand holding back the retail sector.

Despite strong performances from shopping centres and retail warehouses, growth in capital values across the subsector fell from 7.5% at the end of 2010 to 3.8% in March.

Although office performed strongest with an 11.4% total return (7.1% of it income), the regions posted negative growth for the first time since February last year. 

"Again it's the same old story of central London versus the regions," the report said.

Forecasting weaker performance in the absence of an economic recovery, the report's authors said: "Property still remains cheap relative to other asset classes such as fixed income, but any significant capital growth will only materialise when there is a sustained economic recovery to drive rental market growth."

The exception to an otherwise moribund forecast is that for the derivatives market.

Against a "decidedly poor" performance to date this year compared with last, the report forecast that investors unable to secure assets via direct investment in central London office would trade derivatives for the sub-sector instead.

"The dearth of prime UK property may result in continued uplift in derivative activity levels among investors in 2011 as they look at alternative ways in which to gain exposure to the underlying market," it said.

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