Further dips are predicted for the property market

Jul 16 2008 by Graeme King, The Journal

A FURTHER dip in the property market is being predicted by a leading researcher at property consultants Atisreal.

Speaking in Newcastle yesterday, Keith Steventon predicted that, having gone through the property re-pricing and the second dip from the credit crunch, the property sector is moving into a third dip due to the Government putting interest rates up to combat inflation and the economy sinking further.

Beyond that, he predicted that the economy will perform below the normal growth trend until 2011, which means household expenditure will slow further, hitting the retail and logistics sector.

Employment in the financial and business services is also expected to fall a further 1.8% this year and another 1.2% in 2009.

For the investment market, this means that yields will have to move out to reflect where the economy is going, Mr Steventon said.

For the property sector, Atisreal predicts that from their average level of 6.2% in 2007, yields will move to 7.4% by the end of 2008, and out to 8% by the end of 2009.

Office rents are expected to slide by an average of 0.6% by the end of 2008, and further to 2.5% and 1.9% in 2009 and 2010 respectively.

Philip Gifford, director of investment agency at Atisreal, said the North East’s property market cannot be immune from present macro-economic issues which are well documented, almost on a daily basis.

He said: “Yields are still moving out with continuing falls in values. As a result investors are seeking low risk investments or investments with latent rental growth helped by judicious asset management.”

With commodities, equities, house prices, inflation, interest rates and disposable income “inextricably linked together” Mr Gifford said there was “understandable nervousness” in some quarters where occupiers were taking a longer-term view.

He added: “However, the region continues to have a shortage of supply of product to let in most sectors and in most regional locations. Prime, grade A office space in central Newcastle is in such extremely short supply that rental growth is expected this year.

“Across the region, high streets remain busy with very little in the way of new space coming through. Eldon Square and the £170m investment by Capital Shopping Centres is by far the largest ongoing retail development in the region.

“As shortage of space for retailers has been a feature for many years, the CSC scheme should absorb much of the pent-up demand with key lettings in place already.

“The underlying macro-economic picture with escalating fuel, utility and food prices is unsettling. Now half-way through 2008, the recovery forecast for 2009 is beginning to look more like a year away with more falling capital value as yields move out further.

“Though this is yet more gloom for the market, as always for those with cash the opposite is true as they will be able to take advantage of the good deals which are about and which only a few can chase.

“This will appeal to so-called vulture funds many of which have still to commit to the market in anticipation of values falling further.”