Private equity funds are among investors turning their attention to the nascent investment market recovery in some of the Eurozone countries now “the crest of the wave has broken and the low-hanging fruit has now gone” in the UK, Lloyds Bank Commercial Banking claims.
A survey of more than 500 real estate professionals conducted by Lloyds in association with the Investment Property Forum indicates confidence in the UK’s commercial property market remains high, with more than 60% expecting activity will continue to increase over the next three to six months.
However, an increasing number believe the market will level out – around a quarter expect activity to remain at current levels for the next three to six months which compares to just under a fifth in the last report in April.
Lloyds’ second Commercial Property Confidence Monitor of the year suggests prices will begin to stabilise in line with this slight confidence softening.
Only 3% of major businesses said prices would stay the same in the spring compared with 30% in this latest survey.
John Feeney, global head of commercial real estate at Lloyds Bank Commercial Banking, said: “The crest of the wave has broken and the low-hanging fruit has now gone.
“The UK’s market has soaked up a lot of capital over a short period of time and some investors, such as private equity funds, are turning their attention to the nascent investment market recovery in certain Eurozone countries particularly in the periphery.”
He said the UK market was further advanced in the recovery and so the latest survey reflected a tempering of enthusiasm and the return of more normal levels of activity.
“Confidence still remains far higher – by 55 index points for businesses and 94 points for fund managers – than at the same stage two years ago,” he added.
The survey also found that the majority of UK real estate professionals believe that overseas investment into the commercial property sector has had a positive impact.
Some 60% of UK investors believe foreign investment has had a positive impact. At least 17% say they have altered their business investment plans because of this influx.
Feeney said: “For many regional commercial property operators the influx of foreign capital has widened the range of exit options and shifted focus away from UK institutional buyers.”
He said a variety of foreign buyers are now active in regional UK markets including sovereign buyers seeking stabilised assets and more opportunistic investors willing to take asset management risk.
Investment activity also looks set to increase, with fund managers reporting a slight increase in their investment intentions – rising from 70% to 72%. Some 53% of major businesses say they plan to spend compared with 50% in April.
Alan Patterson, chair of the research steering group at the Investment Property Forum, said growth was slowing globally, with fears of stagnation, although that did not seem to have affected the strong inward capital flows, which was “continuing to drive demand for product at the prime or secure end of the market, an area that many domestic players feel priced out of”.