At the start of last week BDO released its quarterly Commercial Real Estate Review (CRER). The review touched on the impact of future public sector cuts, the decline in public sector building works already being felt by the construction sector and the importance of the availability of finance if the private sector is to support a recovery for the property market.
Last week also saw the start of the quarterly and half year announcements from the listed property companies. Hammerson was first to announce on Monday with a 5.2% growth in the value of its portfolio over the last six months. On Tuesday the newly formed Capital & Counties followed with portfolio growth of 5.3% for the six months to 30 June. The news on Wednesday was less positive with British Land reporting growth of only 1.4% in the last quarter and going so far as state its caution regarding the near-term outlook.
The relatively low increase in value of British Land’s portfolio suggests a cooling of the market in the last couple of months. Although neither Hammerson nor Capital and Counties produced quarterly portfolio valuations it is reasonable to assume that the majority of their growth was achieved in the first three months of the year. However, the outlook is not all doom and gloom with some major acquisitions over the past couple of weeks including; Derwent London’s £146m acquisition at Tottenham Court Road; Hammerson’s £175m acquisition at Gresham Street; and perhaps more interestingly Berkeley’s £10m acquisition of Roman House near London Wall.
The common theme with these acquisitions and all current strongly performing assets and portfolios appears to be their prime nature, be it in terms of either location or tenant covenant. Certainly as the economic outlook becomes increasingly uncertain sentiment seems to be strengthening even further in favour of prime property over secondary assets. Whatever the economic outlook for the short to medium term, the Government’s public sector spending cuts would suggest that any sustained recovery in the property world will be led by the private sector. Common consensus for some time now has been that greater availability of bank finance is key to a recovery in the sector. We wait with baited breath to see whether the unexpectedly good results announced by various banks this week will translate into the availability of greater credit.