Reita predicts UK commercial property recovery in 2H

The UK commercial property market should stabilise by mid-year followed by a gradual recovery for the second part of the year, according to the first quarterly property investment perspective report issued by Reita.

Retia is the UK education and awareness campaign for property investment and real estate investment trusts.

The report noted the rate of decline of the capital values of UK commercial property, as measured by IPD, are slowing while the end of the re-pricing seen in the market is in sight, with a gradual recovery foreseen in the second half of the year. One encouraging note is provided by the interest of foreign investors, Reita said, pointing to Qatari investors funding the 'Shard of Glass' office tower project at London Bridge, GIC of Singapore buying into prime UK shopping centres and a German fund buying One London Wall.

UK property stocks, which are mainly REITS, are currently trading to a discount to net asset value (NAV) of about 20%. The discount has narrowed considerably from around 35% seen in just mid-November The improvement comes partially as a result of falling NAVS but also on the back of a moderate rally.

The perspective report is based on the Reita market review panel discussion on the market led by Patrick Sumner, chairman of the organisation and head of property equities at Henderson Global Investors. Representatives of other Reita member companies also took part.

'It is perhaps axiomatic that property shares are a good predictor, six months in advance, of underlying property trends,' Sumner said. 'If that is true, then the bottom of the share market was in November and the IPD capital value index will stop falling in May 2008.'

At the same time, the Reita panel agreed that it is important not to assume the UK is typical of other markets. It noted, for example, that in contrast to the UK, yields actually fell in France in 2007.