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United Kingdom Real Estate Report Q3 2010
Business Monitor International, June 2010, Pages: 56
The United Kingdom Real Estate Report provides industry professionals and strategists, corporate analysts, real estate associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on the United Kingdom's Real Estate industry.
Most protagonists in the UK’s commercial real estate sector have endured difficult times over the last 18 months. Rental rates have fallen by about one-fifth, in all three sub-sectors and most parts of the country. Prices and values have dropped by a greater amount, with the result that net yields have risen. Only some of our sources (in Manchester, notably) express any confidence that conditions will improve markedly in the coming year. Landlords in central London may be able to benefit from the partial recovery in the fortunes of the global financial services sector. Others, outside London, may be able to benefit from the relocation of businesses from the capital to less expensive parts of the country. Overall, though, BMI considers that the prospects for the sector are uninspiring.
The principal problem is that, as a result of a long and deep recession, UK businesses are unwilling or unable to sustain paying the rental rates that were prevailing prior to 2008. It is difficult to see this situation changing for the better anytime soon. The new Conservative-Liberal Democrat coalition government will be forced to pursue austere fiscal policies. Over-leveraged and still exposed to the further falls, that we expect, in housing prices, UK households are unlikely to increase their consumption over the next two years.
Nevertheless, there are two positive aspects that are worthy of a mention. One is that the UK commercial Real Estate sector as a whole does not appear to be exposed to a glut of new property. Vacancy rates are, in some places, running at double-digit rates, but only just. The second is that the fortunes of all UK businesses which are oriented towards export markets – be they manufacturers or service sector enterprises – have enjoyed a huge boost to their competitiveness as a result of the slump in sterling relative to most other major currencies. It is possible that it is a recovery in exports that finally changes the dynamics of the country’s commercial Real Estate sector for the better.
Over the next two years or so, we anticipate that yields for commercial Real Estate in the UK will continue to rise. In London, especially, this will likely be the result of further slippage in capital values and prices. Elsewhere, the process could be assisted by a modest rise in rental rates. Interviews with our in-country sources were conducted in mid-March 2010.
Key Features Of This Report
This is the latest edition of a new series of industry reports published by BMI that seeks to identify the key dynamics of the real estate sectors of 44 countries around the world, some of which are developed and some of which are, in every sense, emerging markets. Once again, the questions that we seek to answer for each country remain as follows: What are the main issues that will matter to actors in and around real estate development in the country concerned, both over the long and the short term? What are the main constraints that they face? What are the key insights that one garners when one compares the real estate sector of the country concerned with its peers in other countries?
For Q3 we have introduced a very substantial new improvement to the reports. We have incorporated data and qualitative observations provided to us by commercial real estate agents operating in the countries we survey. As a result we have gained a much clearer picture of the balance between demand and supply in each of three main sub-sectors – office, retail and industrial. We have also introduced a new approach to the forecasting of rental yields, which is discussed in the methodology sector of this report.
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