Sentiment towards UK commercial property is getting increasingly negative by the day, according to the latest research by Drivers Jonas.
This is because of rising interest rates, rising bond yields, weakening retail rental growth and reports of falling capital values in secondary areas of the market.
The research led the firm to predict there will be an overhang of unsold product this autumn as liquidity in the UK market decreases.
Howard Richards, partner and head of Investment at Drivers Jonas, said: ‘Values of secondary property must surely fall this autumn with yields paralleling the upward trend in gilt yields. Re-pricing of some areas of the market is inevitable.’
The Drivers Jonas research concluded while values are already falling in parts of the market, prime values will remain robust, particularly London due to both solid rental performance and continued investor demand.
‘The volume of transactions recorded may well be lower this year, but DJ expects a reasonable pace, providing vendors are realistic in their expectations and purchasers set reasonable, but not over ambitious, return objectives.’
Anthony Duggan, partner and head of research, said: ‘Rising interest rates are a significant threat to current property valuations. We are already seeing some investors calling a time-out on the UK market until base rates have stabilised. If rates move up only once more, as we believe they will, this uncertainty should only last 6-9 months before investors are positive enough to re-enter the market and some liquidity returns.’