Tuesday, February 12, 2024
Cash is king in current market conditions
Recent market turmoil has prompted much debate on the future prospects of commercial property and some realistic crystal-ball gazing was the subject of two seminars held by Drivers Jonas in Glasgow and Edinburgh this week. Anthony Duggan, Partner and Head of Research at Drivers Jonas, said: "Cash is king again and the cash backed investors will replace the highly leveraged buyers".
Looking at the prospects for the Scottish commercial property market, Andrew Kubski, Partner with Drivers Jonas in Scotland, said: "2008 again looks poised to be a year of two halves. The first half is expected to be a period of gradual stabilisation, followed by a greater volume of investment activity in the second half as the 'floor' of the market is passed allowing cautious re-entering by a number of funds.
"Reducing interest rates, SWAP rates and LIBOR, added to receding inflationary pressures, will provide low geared, debt backed buyers with much needed 'arbitrage' to fund acquisitions.
"A sense of reality is returning to the market with purchasers being able to carry out informed and in depth due diligence before committing to a purchase. Property repricing is occurring at an increased rate, and we feel that valuations are far quicker at reflecting market sentiment.
"We envisage that well funded property companies and private investors with no short term performance constraints will be able to pick up good value deals. In Q3 we expect more competition on the buying front. In turn, yields may actually harden in the second half of the year. The easing of monetary conditions is helping investors, previously priced out of the market, to re-enter, and this is once again creating competitive positions.
"The yield on property, compared with other asset classes, remains attractive. Total returns for property are likely to be around 0.0%.
"Other than the general economic slowdown we are currently witnessing, there are unlikely to be any other macro economic issues affecting the property market. As a result, the main Scottish office markets will benefit from safe and stable rental growth. The occupier markets are not over supplied with stock and remain robust. It can be argued that an under supply of Grade A accommodation currently exists in Edinburgh and Aberdeen. The Aberdeen market is particularly buoyant with rising oil prices continuing to create large occupier demand for space within the city centre. Mid range, secondary properties are benefiting from the lack of Grade A accommodation within the major towns, as occupiers look for alternative space solutions within the city centres. A number of Grade B properties within Glasgow city centre have been the subject of refurbishment or redevelopment to satisfy the inherent demand."
David Murdoch, Partner with Drivers Jonas in Scotland continued: "The vultures are definitely circling. The larger institutions, companies with war chests and investors with opportunistic funds are lining themselves up to take advantage of this situation. Within the last week
· Land Securities has announced a £500m fund
· British Land announced a £500 fund.
· Helical Bar announced they had £100m to spend but because they are quite low geared, that could go to £500m
· Valad, the Australian prop co has announced a £500M opportunity fund
Many of the debt backed investors were squeezed out of the market during 2006 and 2007 and arguably interest rates have got to move well in before the more highly leveraged buyers will want to get out of bed in the morning."
Looking at the prospects for the Scottish commercial property market, Andrew Kubski, Partner with Drivers Jonas in Scotland, said: "2008 again looks poised to be a year of two halves. The first half is expected to be a period of gradual stabilisation, followed by a greater volume of investment activity in the second half as the 'floor' of the market is passed allowing cautious re-entering by a number of funds.
"Reducing interest rates, SWAP rates and LIBOR, added to receding inflationary pressures, will provide low geared, debt backed buyers with much needed 'arbitrage' to fund acquisitions.
"A sense of reality is returning to the market with purchasers being able to carry out informed and in depth due diligence before committing to a purchase. Property repricing is occurring at an increased rate, and we feel that valuations are far quicker at reflecting market sentiment.
"We envisage that well funded property companies and private investors with no short term performance constraints will be able to pick up good value deals. In Q3 we expect more competition on the buying front. In turn, yields may actually harden in the second half of the year. The easing of monetary conditions is helping investors, previously priced out of the market, to re-enter, and this is once again creating competitive positions.
"The yield on property, compared with other asset classes, remains attractive. Total returns for property are likely to be around 0.0%.
"Other than the general economic slowdown we are currently witnessing, there are unlikely to be any other macro economic issues affecting the property market. As a result, the main Scottish office markets will benefit from safe and stable rental growth. The occupier markets are not over supplied with stock and remain robust. It can be argued that an under supply of Grade A accommodation currently exists in Edinburgh and Aberdeen. The Aberdeen market is particularly buoyant with rising oil prices continuing to create large occupier demand for space within the city centre. Mid range, secondary properties are benefiting from the lack of Grade A accommodation within the major towns, as occupiers look for alternative space solutions within the city centres. A number of Grade B properties within Glasgow city centre have been the subject of refurbishment or redevelopment to satisfy the inherent demand."
David Murdoch, Partner with Drivers Jonas in Scotland continued: "The vultures are definitely circling. The larger institutions, companies with war chests and investors with opportunistic funds are lining themselves up to take advantage of this situation. Within the last week
· Land Securities has announced a £500m fund
· British Land announced a £500 fund.
· Helical Bar announced they had £100m to spend but because they are quite low geared, that could go to £500m
· Valad, the Australian prop co has announced a £500M opportunity fund
Many of the debt backed investors were squeezed out of the market during 2006 and 2007 and arguably interest rates have got to move well in before the more highly leveraged buyers will want to get out of bed in the morning."
<< Latest news main page