Downward pressure on rents caused by a slowdown in the economy will exacerbate the slowdown in the property market, Jones Lang LaSalle said today.
In a new report JLL said that there is no longer a debate over whether there will be a slowdown in the UK economy, which coupled with the ongoing effects of the credit crunch meant that UK property had not yet reached the bottom.
JLL said that UK investment volume had picked up slightly in the first quarter of 2008, with £6.5bn of activity measured, compared to £6bn in the final quarter of 2007.
Activity levels down
However, this is still down significantly on the £15bn of activity recorded in the third quarter of 2007.
Julian Stocks, Head of UK Capital Markets at Jones Lang LaSalle said: ‘We have not reached the bottom of the market yet and after the outward yield movements of the last six months rental levels are now under pressure in a number of sectors.
‘There are not many distressed sellers at the moment so there remains a gap between vendors’ expectations and the prices buyers will pay. Debt remains expensive and hard to come by.’
However, the report highlighted some positives for the UK market. ‘One bright spot has been the continued interest in the UK from overseas investors, who invested over £2.0bn (net) in the first three months of 2008,’ Stocks said.
‘Many see the UK as a safe haven and better value than other markets.’
Neil Prime, Head of Agency at Jones Lang Lasalle said: ‘One impact of the credit crunch has been to put a brake on a substantial amount of the development pipeline that was scheduled for the next five years.
‘We estimate that the additional supply in the City office market in 2011, namely sites where construction has yet to start, has fallen to 2.87m sq ft from the 6.09m sq ft figure we were anticipating in early 2007. This should help stabilise London City rents in the medium term and support any subsequent rebound.’