UK capital values to stabilise: Invista

Capital values in the UK are likely to stabilise over the next six months and then remain broadly steady, according to the latest research report produced by Invista Real Estate Investment Management.

But Invista warns there may be a number of shifts within the market, reflected by peaks and troughs, as alternative sectors and regions of the UK perform quite differently.

Buyers appear to have broadened their investment criteria, with increasing interest outside of the traditional prime, well-located, long-let properties that have characterised demand over the last year, driving down yields across the less prime market. Nevertheless, secondary property yields remain, for now, anchored by the downside risk implied by the currently fragile economic outlook. However, should base rates and gilt yields rise significantly in the next two to three years, hitting lower-yielding assets harder than those in the secondary markets, fortunes could change.

Capital values rose 1.5% in total over the third quarter of 2009 - a return to positive growth after eight consecutive quarters of falling values (IPD, UK Quarterly Property Index, Q3 2009). On a monthly basis the 2.4% rise in values over November 2009 was also the biggest since March 1994 (IPD, UK Monthly Property Index, November 2009).

Mark Long, head of Investment Strategy and Research at Invista: 'We believe commercial property continues to offer attractive long-term performance prospects underpinned by a high level of income return.

'To date, the current recovery in values appears to reflect a return towards fair value after a period of excessive risk aversion. However, over the short term there is a risk that the current recovery in values runs ahead of the underlying asset class fundamentals, which may result in values dropping back as the impact of the weak occupier market reasserts itself or interest rates increase.'