Colliers CRE see another year of UK commercial property negative returns in capital values and rentals
It will take another year before the effect of the property crash has come to an end, as capital and rental growth are both expected to be negative next year, according to Colliers CRE, although total returns from property are still set to rise to 5.7% as the recovery continues to drive yield compression across prime property. Colliers is forecasting a total return of 3.4% in 2009.
Colliers said that it has improved forecasts owing to greater price increases and smaller rental growth declines than expected.
Colliers said that price growth was expected to slow but continue on the better quality property into 2010. However, it warned that there was uncertainty over whether the 'wall of money' from investors chasing property will continue to drive performance, which it described as reminiscent of the previous boom period.
Rising interest rates and the potential release of distressed stock on to the market pose the largest downside risks to capital values, Colliers added, while rental values will not support capital values until 2011 at the earliest.
Russell Francis, head of valuation, said: 'We have had a massive bubble this year that has taken everyone by surprise but only the better properties have been moving. We are saying that this will continue next year, with prime property remaining strong but the secondary properties still under pressure and keeping the market down as a whole.'
Rents are set to fall by 7.7% overall, having already fallen by about 10.2% this year.
By 2011, the decline is forecast to be a marginal 0.8%, before rising again to 3% in 2012, 4.8% in 2013 and 4% in 2014. Offices are set to see the strongest recovery.
Capital value falls are expected to moderate to 1.7% next year, from 2.9% in 2009 and 26.3% in 2008. A recovery in subsequent years is predicted, with modest growth of 0.3% in 2011, 2.3% in 2012 and 5.8% in 2013. The annualised growth between 2010-2014 is 2.4%.
Even with these declines, the income return from property is expected to grow, rising from 6.5% this year to 7.6% next year and in subsequent years.
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