What price Spinningfields today?
Manchester> Investment
▼Is the big freeze that has
gripped property for the past year beginning to thaw? An investment
agent and a banker tell Place how they see the market at the end of
2009.
Bruce Poizer, director in investment at DTZ Manchester, said: "There are a couple of factors coming together that are beginning to have a major impact on pricing at the moment. We have seen a real bounce in prime property valuations towards the end of the year. Offices at Spinningfields sold at 7% yield at the end of 2008; this had moved to 6.5% by September 2009 when Standard Life sold the Co-operative Bank headquarters building for £21m to a private family trust. We are low on transactions to look for as evidence but noises in the market suggest we would be nearer to 6% for prime offices if a deal was done today. That's a 10-15% shift in value in the space of two months, which is dramatic and can't be sustained into 2010. Demand is being led by institutions looking to redress the balance of their portfolios. The surge in share prices and drop in property values means their portfolios need more property to get back to the desired quota. Institutions will typically want about 8% of their portfolio to be property assets but many have more like 5% now.
"Deals led by bank debt are still hard to come by and there will be a net outflow of lending to the property market in the next five years. The loan to values required mean developers and investors have to have a lot of cash to get debt. Conditions are getting slightly better, with the best indicator being the Libor rate of lending between banks being only 10 points higher than the base rate, 0.6% to 0.5%, whereas it was 100 points higher a year ago. The exchange rate is also attracting foreign interest into the UK.
"The main problem holding back deals is lack of prime stock. We expect to see some rental tenant failures during and after Christmas which will impact on landlords and may see more stock brought to market early next year."
Phil Basten head of property finance at the Co-operative Bank: "We are looking at suitable product and doing a trickle of deals but struggling to get the type of product we are looking for. There are a few other lenders in the market such as Santander, Nationwide, HSBC, but the terms are so varied because they are all coming from very different places financially that we find it simpler to do bi-lateral deals between us and the client rather than forming clubs with other banks. The other banks are having trouble dealing with their back-book where funding is in the negative and they need to work out what to do with it.
"On the development finance front, the government's Kickstart funding is very important and is helping bring cash into the schemes. Some of the big house-builders have re-geared which puts them back in a position to start doing things.
"Smaller developers are in a disadvantaged position competing with the big developers in very difficult market. One south Manchester estate agent we deal with said the market is 30% to 50% of 2007 level in the volume of sales and he described it as 'very fragile'.
"It remains to be seen what impact changes in tax and public spending will have on consumer spending and office occupiers, especially if we see a rise in public sector unemployment."
