Commercial property investment demand

Nia Williams

December 3, 2009

Previously closed funds have re-opened as private investors flock back to the market while institutions and foreign investors also hunt for purchases. As a result, listed property companies are well placed to off-load assets they expect to under-perform.

The Investment Property Databank (IPD) has shown a 4.5% capital value increase since the bottom in June this year, following a 45% fall over two years. But this understates the sharp rise in value of prime assets, notably retail and central London office assets with strong rental growth potential.

Recent interim reports from British Land (NAV +1.4% in three months to the end of September) and the London-focused Great Portland Estates (NAV +4.2% over the same period) have reflected the IPD’s positivity.

Patrick Sumner, head of property equities at Henderson Global Investors and chair of Reita, said: “The UK index is estimated to be trading at a 12% premium right now, but this seems fair if we are right in thinking that NAV growth will be in double digits in the next 12 months. There is differential pricing, with the London office specialists trading at 20-30% premiums, which may fairly reflect their potential.

”Reits are now in good shape financially and geared into a recovering market without the headache of a pile of uninvested cash. The important thing in the next few years is to add value for shareholders through active asset management, new investment that plays to their competitive advantages and measured, well-timed development.”

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