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February 3, 2010
Where is the Property Market Headed in 2010?
There is a large debate about whether the property market can continue with the momentum that it finished 2009 with. A shortage in supply of stock, a weak pound and strong levels of demand both at home and abroad have helped keep prices high. How long this can persist is another question.
James Darkin of Global Property at Henderson Investors writing in The Estates Gazette states that the The Bank of England’s ability to manage inflation will be crucial in helping recovery, but too much government focus on this issue could stifle recovery. He believes that the requirement for institutional investors to acquire assets that look well priced in relation to equities and gilts, should help stimulate the market. He further states that with pressure on The Bank of England to keep interests rates low in order to help consumers and businesses, the market could do well in 2010. However, with an increasing number of businesses facing cost reductions, administration and people faced with unemployment, this upward shift appears to be confined to the prime sector, in particular prime assets in The South East, which continue to benefit from the influx of money from abroad and are perceived as a safe bet for investors.
Much of the recovery rests on consumer sentiment and The Government’s ability to improve it by setting clear goals to tackle the budget deficit. The banks have managed to avoid a huge sell off of assets and if they continue with their pragmatic approach and rental values continue to steady, this should help avoid widespread repossessions this year.
With prime yields remaining above their long term trend and demand remaining strong for prime assets, particularly in The South East, any falls in asset prices are likely to be felt far more in secondary than primary locations.
Darkin believes those likely to do best are those that offset the wider economic risks against the specific attributes of individual properties. However, whilst institutional and private investor demand continues to hold up the prime South East market, the rest of the country seems to be facing a long road to recovery.