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News Release

London

Jones Lang LaSalle’s Q4 2012 UK Property Index shows potential green shoots in the UK secondary market


London, 25th January 2013 – The latest Jones Lang LaSalle “style index” shows potential green shoots in the UK secondary market as quarterly returns for Value (secondary) assets were slightly up at 0.4% in 2012 Q4 from 0.3% in Q3. Whilst the overall picture for 2012 has been a marked divergence in investment performance between prime and secondary this is encouraging and could be the start of the bottoming out of the secondary market. In 2013 we expect to see the re-emergence of secondary, as investors look at lower grade properties due to overpricing and lack of supply in prime. 

Mike Penlington, director in Jones Lang LaSalle’s Valuation Advisory team said:  “Whilst purchasers remain highly selective we are seeing early signs of a renewed appetite for some secondary stock underpinned by realisable opportunities”
 
The index also shows the continued variation in returns across sectors with offices leading the way at 1.3% as overseas investors continue to see prime office space as an effective tool for wealth preservation.
 
Looking at the full year figures for 2012, returns came in at 3.3% compared to 7.6% at year to end December 2011. This was down to five consecutive quarters of negative capital value performance and weaker income growth.
 
Andrew Burrell, head of Forecasting at Jones Lang LaSalle said:  “Last year was not a vintage one for UK commercial property. Annual returns were at their lowest since 2009 as yields rose steadily and rents fell outside of the office sector. Economic headwinds will not disappear in 2013, but with signs that the capital contraction is easing the outlook is set to improve, albeit slowly.”
 
Other key highlights from the research include:
 
• Total returns fell to 1.0% in 2012 Q4 compared with 1.3% in 2012 Q3.
 
• Capital Values continued to fall for the fifth consecutive quarter (-0.6% in 2012 Q4). Negative capital value performance was seen across all sectors albeit at a slower rate of decline than in previous quarters.
 
• Returns varied across sectors with offices leading the way at 1.3%. Retail and Industrial at 0.9% and 1.2% respectively. Overseas investors are driving office performance, while retail continues to struggle with consumer sentiment, limited demand for secondary product and rental declines.
 
• Looking at other asset classes, equities recorded the strongest returns at 3.8% in Q4. Returns declined in Gilts to -1.0% over the quarter.
 

• All property rental growth stagnated at 0.0% in Q4, with limited growth in offices being dragged down by rental declines in industrial and retail.