The values slide – an August phenomena, or the norm?

My Property Data book arrived this week – showing the state of the market to the end of July 2012. It’s become a fairly predictable story – flat, flat, flat.

Transactions are down on the same period last year but better than 2008 and 2009. Overseas based purchasers now are the single largest investors. The office market remains the biggest traded sector – three times that of retail. And nearly 80% of those transactions are in central London. It’s a skewed market in favour of the capital!

But the real story is in the average yields returned from property. I have said before that the average yield is a bit difficult as it covers all sectors and is a little crude but as that’s what you are comparing it to, then it gives quite a good measure. For the last 12 months the yield has been resolutely flat at between 6.27-6.46%. But last month it drifted to 7.08%. Thats quite a shift – over 0.5%.

I know not everyone understands yields – it’s part of a valuers black art (!). But in real money if you had an income of £10,000 pa – your value at a gross yield of 6.27% would be £159,489. At 7.08% it would have dropped to £141,242. A drop of nearly 13%…

So these apparent small shifts in yields make huge differences to the capital values. Imagine now what would happen if it wasn’t a corner shop you owned (paying the £10,000 pa) but a shopping centre owner where the rent roll was £1,000,000 pa. Ouch!

The question we face most days is ‘when will it change’.The answer is we don’t know. The smart money is on a recovery in late 2013 / early 2014 – in the run up to the General Election. And then a return to austerity again. Realistically I think it will be 5-10 years before we see any real growth…

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