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UK Prime Property Yields Steady, Financing Remains Tight

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United Kingdom  Europe  CB Richard Ellis  CBRE  Africa  Peter Damesick  real estate sector finance  real estate investment activityreal estate assets  mezzanine finance providers 

UK Prime Property Yields Steady, Financing Remains Tight

By - Thursday 22 March 2012

Prime yields across all UK commercial property sectors remained stable in February, with the current levels expected to be supported this year by an imbalance in supply and demand for the most sought-after real estate assets. There is even the possibility yields could harden by the end of 2012 as a result, the Savills Market in Minutes bulletin - which looks back at the real estate investment activity last month - asserted.

While every sector of the UK's commercial property industry is holding steady, the firm noted there was significantly less investment during 2011, compared to the previous two years. The total amount ploughed into the real estate sector slipped by 7.1 per cent last year, whereas in 2010, a 45.5 per cent rise in investment volumes was recorded. Savills put this down to the eurozone crisis, which slowed the market considerably in the final six months of 2011, adding "unsurprisingly, this tempered investor confidence". 

A further challenge for those seeking property investment opportunities is the lack of funding available. While the organisation highlighted 21 lenders who are prepared to finance large deals, it noted the institutions are "very selective". The report stated: "They are all looking to provide finance to selected borrowers with a track record secured against good quality properties with strong covenants." However, this has resulted in a greater number of mezzanine finance providers entering the market, with Savills adding there are 30 such organisations currently offering this type of funding.

Earlier this month, CB Richard Ellis (CBRE) published research which revealed almost one-third of the investors surveyed cited the lack of debt financing as their "greatest concern" for the recovery of European property markets in 2012. According to the survey, 43 per cent of those questioned also stated debt availability was having a negative impact on their real estate investment activities this year. Peter Damesick, Europe, Middle East and Africa chief economist at CBRE, said investors targeting assets outside prime or core markets have been hit particularly hard by the shortage of loans, while difficulties in raising funds will also have an effect on those who "favour opportunistic, value-add or distressed assets" and is likely to suppress their purchasing activity in 2012.

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