Mena investors set to play a greater role in UK market

Property for sale signs in London. Investors need to be well advised to ensure they are purchasing at or below market rates getty images

Investors from the Middle East and North Africa (Mena) region are expected to play a greater role in the United Kingdom property market in 2010, says Asteco.

Using data supplied by London-based Savills Research, the global real estate consultancy said there has been a dramatic turnaround in the market, with huge demand for London office investments coming up against relatively few willing or unwilling sellers.

Richard Angel, Head of International Investment at Asteco, said: "A recovery in values has now commenced. We, therefore, expect Mena investors to play a greater role in UK investment in 2010 because of market confidence and a still reasonably strong dollar. However, there is a clear demand/supply imbalance, which is assisting in the increase of values and any investors will need to be well advised to ensure they are purchasing at or below market rates."

London's real estate market may have suffered a rollercoaster year in 2009, but it has been a year of two markets, the report said.

Prime City and West End yields have fallen by about 100 basis points, especially in the second half of 2009 as prices steadily rise. Indeed prime office rents will witness a noticeable recovery from the middle of 2010. This scenario will likely play out over the next three years as rising demand will be faced with a development pipeline that is virtually non-existent at the moment.

On the other side of the coin, the leasing market in London was "seriously" depressed throughout the first half of 2009. Although there were signs of recovery in the second half of the year, as savvy tenants looked to take advantage of low rents and anxious landlords. In general, the story was one of low levels of demand, rising vacancies and falling rents.

"This led the second half of 2009 – particularly in the City of London – see much higher volumes of take-up than in the first six months of the year. It looks likely that the total take-up in the City of London will exceed four million square feet this year – only marginally below the long-term average," the report added.

As far as supply is concerned, the big story in the second half of 2009 has been stabilisation of vacancy rate, and the fact that it has begun to fall over the past few months. In the City of London the vacancy rate peaked at 15.3 per cent and now stands at 14.5 per cent. In the West End the peak was 6.7 per cent and this has fallen to 6.5 per cent over the past three months.

On the residential front, in terms of forecasts, after a sustained growth period that started in March 2009, the mainstream housing market has now caught up with levels last seen in September 2008.

"We anticipate that residential prices will soften into 2010 and this could be a very good time for Mena investors to take advantage of lower prices. Although supply will increase from 2009 levels, it may remain weak comparative to the market highs," added Angel.

 

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