Rising real estate prices in the UK may lead to increased real estate sales by banks, according to Malcolm Naish, director of property at Scottish Widows Investment Partnership, the asset management firm owned by the Lloyds Banking Group.
Relaying his market predictions for 2010, alongside other sector specialists at the firm, Naish said that despite the reluctance so far by the banks to exit their real estate positions in any great volume, recent price increases my open the doors to increased sales.
He said: “At the moment lenders are releasing limited amounts of impaired stock, but rising prices may encourage them to reduce their positions more quickly.”
“In the UK, demand for good quality investments are once again exceeding availability, with prices climbing as a result. Property companies, institutional and overseas investors are spending again and buying buildings at attractive prices. The key risk to the current UK rally is on the supply side – will the level of stock coming onto the market increase significantly? Here, the actions of the banks are crucial: they need to reduce their exposure to property.”
He added that across Europe, there was still an apparent weakness in the occupier markets. He said the real estate markets that have suffered the most as a result of the economic downturn and credit crunch, principally Spain, Ireland and Greece, would not likely to return to rental growth until 2011, although he had observed that rental declines in these countries was “moderating”.
“Looking ahead, companies will need to be confident about future economic conditions before they expand their businesses, increase headcount or look for new space. But while valuations and the cost of debt (where available) remain low, property is likely to continue to be attractive over the coming months. This is a great time to be redirecting funds back into the asset class; compared to cash and gilt returns, property looks good value.”