Cluttons sees high demand in prime UK commercial locations

KUALA LUMPUR: Cluttons’ commercial property outlook report for the UK published October 2009 for its 3Q performance sees high demand in prime locations but not those on the secondary market. “Demand is currently strongest for West End offices and property with long secure income, but we expect that the range of property types considered a good investment will broaden, as confidence builds over the next six months,” it says.

The occupier market will suffer following the sharp deterioration in economic output (down 5.5% thus far in 2009) and rising unemployment (up to 2.5 million). “There will be further tenant insolvencies and voids may rise. Rental values remain vulnerable across all sectors, and for secondary properties in particular, returns available to service debt will be hit by loss of income and the cost of empty rates,” states the report.

It is predicted that notable economic growth will only be experienced in the second half of 2010 but with the property performance lagging behind the wider economy, overall portfolio returns may only turn around in 2011. “Unless, of course, the portfolio stock is prime, which should then outperform,” the report surmises.

OFFICES

Occupiers continue to cut back on costs and few have expansion plans. “The majority of demand for space is coming from tenants with break clauses seeking to renegotiate and take advantage of long rent-frees currently on offer,” Cluttons reports.

RETAIL

Cluttons notices that rents are falling across most high streets and shopping centres as voids rise and it being a tenants’ market, concessionary rents are frequently offered to keep units occupied and to avoid empty rates. Some retailers like Poundland, a value retailer, are expanding. However, Cluttons expects “rents in most locations to fall throughout 2009 and 2010 followed by a slow recovery from 2011”.

INDUSTRIAL

Properties in this subsector are weak, thanks to falling rents, higher vacancy rats and the liability for empty business rates, although there has been a small rise in output over the last quarter, says the report. Nevertheless, “prime investment properties have been re-priced and the sector has seen significant yield compression with prime yields falling by 50bp since June[ 2009]”. The report says that for this sector, the current trend is one of stablisation rather then growth; and expects rents to continue to fall throughout 2009 and 2010.

For greater details on this report, please visit theedgeproperty.com’s research section.