UK property chiefs split on the shape of recovery

Leading experts in the commercial property sector in the UK have predicted a cautious year for listed real estate which will see the office market recover far more strongly than industrial, retail and residential property. The latest Expert Panel survey commissioned by Reita, the online portal for real estate investment trusts in the UK, shows that less than 5% of respondents think the remarkable recovery in asset values will continue strongly during 2010.

The UK Investment Property Databank index shows that commercial property values have, on average, risen by over 9% since July 2009. However, while they are still 40% below their 2007 peak, their equivalent yield of 8.3% compares favourably to a 10-year gilt yield of 4%.

However, different parts of the market are moving at different speeds, and there remains concern that the wider market - particularly secondary stock not included as part of IPD universe - could take another year to 18 months to catch up with Mayfair and the City. As between different sub-sectors, the Expert Panel remains most optimistic about offices, with 48% expecting it to recover faster than retail, industrial and residential over the next 12 months.

The FTSE UK Property Index, which tracks quoted property stocks, is up 93% from its low March 2009, but still 65% below its peak at the start of 2007 and 30% below its level of September 2008, before the fall of Lehman Brothers.

Expectations about how rental values will perform have improved, with 43% expecting them to recover more quickly than they did following the 1992 recession, up from 29% in the last survey.

Dave Butler, director of corporate affairs at Grainger, says: 'Although recent indicators point to stabilisation in the market, it is ultimately the supply and demand imbalance that is propping up house prices and it would be short-sighted to assume we are out of the woods yet. In such an environment the only prediction that can be made with confidence is that 2010 will be a year of uncertainty. Ultimately it is financing that will the crucial factor, at present we are still seeing significant restrictions in mortgage finance, which have thwarted willing buyers hoping to snap up a bargain.'