Posted: Wednesday 25 January 2012
Mind the Gaps
I had the privilege as a member of the Scottish board of the IPF (Investment Property Forum) to attend two recent discussions on prospects for the real estate sector in the UK for 2012. What became clear is that the gap between prime and secondary stock remains. The gap between London prime and ‘regional prime’ is, however, becoming ever more apparent. Initially I was quite struck by this, however on reflection the reasons for this are all too clear.
London is a global financial centre and tourist hub. It will always enjoy a level of activity other parts of the UK can only aspire to. Added to this sterling value is low and the UK as a whole is regarded as having a well regulated, transparent real estate market. Overseas investors are attracted by all of this, as of course are our own funds who seek stable and relatively safe income streams. There is also then the unquantifiable benefit to overseas investors of being able to step off a plane and view their UK asset, which isn’t always possible in the regions.
The regions can offer value however and being guided by those who know their market, both in geographical and sectoral terms can be vital.
This principle applies to prime as well as secondary property, however might the effects of new regulation and slotting requirements in particular result in a widening gap between London and the regions, prime and secondary as only the most sought after assets remain possible to finance on commercially reasonable terms? Some are suggesting that faster re-pricing than has occurred to date will occur as finance for secondary property in particular becomes more expensive and some investors are forced to sell at a perceived discount. This may in turn lead to greater activity as yields arguably begin to more accurately reflect the greater risk profile attached to this type of product. I suspect that whether this is viewed as a good or a bad thing will depend upon your position in the market - there will be pressure on some while there will be opportunities for others. Many would simply welcome greater activity.
