Commercial property may have regained some of the ground it lost since the Lehman Brothers collapse but it appears investor sentiment is cooling on the asset class.
Consistent weak data from the residential market and slow economic growth have caused fund managers to warn markets may turn towards the end of the year.
This comes as M&G moves its £360m offshore Property fund from creation to cancellation pricing following “small but persistent” redemptions.
Howard Meaney, head of property investment at LVAM, says “the heat is slowly coming out of the market” as investors deem the past year’s rise of around 24% in commercial property unsustainable.
“The latest statistics show capital growth is slowing and the derivative curve is showing prices will go negative in the next six months. In our experience we do tend to over-exaggerate what will happen, but it is starting to cool.
“The level of institutional investor interest is reducing and the banks are not lending.”
However, he adds, there are still plenty of opportunities in the prime market and he will be using the slowdown in prices as a buying opportunity.
David Wise, Aegon’s property investment director, warns the coalition Government’s attempts to lower UK debt may put the brakes on the property sector’s recovery.
He says: “Commercial property has seen a substantial recovery, regaining 17% of the 44% peak-to-trough fall seen in the two preceding years.
“However, there are now clear signs that investor sentiment to the sector has cooled post the general election and subsequent Budget. Perhaps there is now greater clarity on the likely impact of the inevitable post-Budget cutbacks.”
He adds the one positive is rents are now rising in central London, although they continue to fall elsewhere.
Philip Nell, head of UK retail property funds at Aviva, says a slowdown in the recovery phase is not much of a surprise: “Like all other capital asset markets, in property we have seen a significant rally and now it has become slightly more uncertain.
“There is still some element of recovery to be had but we are in an uncertain economic climate,” he adds.
