Lloyds: Economic confidence spreading through property

More than three quarters of real estate businesses in the region canvassed by the bank for its latest Commercial Property Confidence Monitor, published today in association with the Investment Property Forum, expect the market to keep improving.

The latest twice-yearly survey of more 500 real estate professionals signaled, Lloyds Bank said, the beginning of a regional recovery in the UK commercial property sector.

The North West saw a significant turnaround in market confidence among its small and mid-sized firms, with 77% anticipating an increase in market activity, compared to just 16% at the same point in 2012.

Respondents, including fund managers, property companies and surveyors, were asked a series of questions relating to their views on market performance and their own businesses' prospects over the next three to six months.

However, occupational deals remain slow to complete and the recovery will not be steep, suggested Eric Day, relationship director for North West mid-markets corporate real estate at Lloyds Bank Commercial Banking. He said: "In the region, local investors and developers, whilst talking more positively, are remaining cautious and focussing on pre-commitment, which is improving with some signs of step change, but is still best described as subdued."

Lloyds Bank believe that activity will increase over the next three to six months, with positive responses at 90% amongst fund managers, the highest level since the survey began in 2010.

This growing optimism, which was first identified in the previous CPCM report in April 2013, could have a tangible impact on portfolio performance, with both fund managers and major businesses signaling a significant shift in attitudes.

An overwhelming majority, 88%, of fund managers expect their assets to increase in value over the coming months, compared to 10% at the same point last year.

Mark Ellis, head of Property, SME banking, Lloyds Bank Commercial Banking, said: "The recovery has now started to trickle down from the sector's major players with the North West's SMEs now catching the infectious confidence flowing from the top end of the market and London.

"This has been reflected in our own activity as a group in the sector, which in volume terms has been weighted towards the SME market this year. We expect further growth in our loan book in 2014."

Alan Patterson, chairman of the IPF Research Steering Group and global head of research and strategy at AXA Real Estate, commented: "The improved optimism demonstrated by fund managers earlier in the year has continued to strengthen, probably as a result of the dramatic recovery in the UK economy in recent months.

"The emphasis placed on management suggests lingering concerns in the occupational market outlook, but the IPF's latest quarterly survey of UK commercial property forecasts from both advisors and fund managers indicate some rental growth emerging in the current year.

"Strong capital inflows and new fund launches, together with a willingness of investors to accept higher risks, will drive managers to look to good regional stock in order to provide better returns, and certainly higher yields, than might be obtainable from prime and core central London and south east property."

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