Interest rate hold will not help occupier demand, says JLL

The Bank of England today kept its key interest rate unchanged at 0.50% for a fifth consecutive month.

The Monetary Policy Committee decided to make a further change to its quantitative easing programme, which started in March, extending it by £50bn to £175bn.

However, the recently revised first quarter GDP data shows that the recession is deeper than previously anticipated and second quarter GDP shows a further decline of -0.8%.

Paul Guest, head of European research at Jones Lang LaSalle, said: "Although we expect corporate occupiers to be close to the end of their cost cutting strategy, pressure on capital expenditure and an unwillingness to incur double over-head costs remain constraints on movement. Occupiers remain characterised by caution, with the resultant inability of many corporate occupiers to raise debt financing externally and their unwillingness to authorise capital expenditure programmes internally.

"Meanwhile, strong investor demand coupled with a dearth of available stock continues to put downward pressure on prime yields across the major sectors. Unlike some months ago, this is now the case in markets outside London. Secondary assets continue to struggle as they are most at risk from weak occupational demand. Where pricing is realistic, however, some of the assets considered secondary are coming onto the radar of investors who have been unable to secure prime assets."

James Thomas, head of residential development and investment at Jones Lang LaSalle, added: "Over the past four months, there has been a growing number of signs indicating that the decline in house prices is beginning to moderate. Nationwide reported that house prices increased again in July by 1.3%, the third consecutive monthly rise, whilst mortgage approvals rose for the sixth time in seven months in June to stand at a 14-month high of 47,584. The increase in house price was mainly supported by reduced mortgage interest rates and the shortage of new properties for sale in the market.

"Although it is tempting to suggest that the worst is over in terms of house price decline, we do not think that a sharp and sustained recovery in prices is likely. Housing market activity is likely to remain subdued compared to long-term averages, given continuing restricted mortgage finance and weak economic fundamentals particularly increasing unemployment."

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