UK - Prupim has revised its forecast for the UK commercial property market as yields are beginning to stabilise, while Aberdeen Property Investors is predicting UK real estate will outperform its continental counterparts over the next five years.
Prupim has argued that yield stabilisation in the UK signals that the worst of the commercial property downturn is drawing to a close, despite continued uncertainty over the economy and short-term difficulties for rental markets.
The real estate manager's latest half-yearly forecast for the UK said yields had reached levels across a range of sectors suggesting they are now "cheap" and able to provide medium-term property investors with at least their required investment returns.
"After the torrid conditions of the last two years, we seem to be heading into a more stable period for UK commercial property," said Paul McNamara, head of research at Prupim.
"Falling rents will ensure that total returns for property will still be noticeably negative in 2009. However, we foresee marginally positive total returns for commercial property in 2010 and above long-run average returns from the sector in 2011."
McNamara said investors were likely to remain cautious in the short-term about commercial real estate, given the continuing impact of the recession on rental levels and tenant security.
That said, he also argued given the current level of pricing "we are not surprised to see signs of renewed investor interest in UK property which, we believe, is now one of the most attractive markets in the world".
At the same time, Aberdeen Property Investors' latest ‘European Snapshot' claimed the UK is expected to deliver the strongest returns in Europe over the next five years, thanks in part to the degree to which yields have moved out.
Overall, the European real estate markets are expected to continue to experience weakness for a further 12 months, driven by sharp falls in rental levels and continuing falls in capital values, the report said.
"The pace of capital decline for European property has slowed over the past quarter," said John Danes, head of UK research and investment strategy.
"We project that capital values will stabilise in most markets by mid-2010, and healthy total returns will be delivered thereafter, aided by a strong income return."