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High yields encourage investors to re-enter UK property market, says Aberdeen


Date: Tuesday, May 26, 2009
Author: Hedgeweek.com

Rental levels in the UK continue to fall, but the pace of capital decline is slowing substantially, according to Aberdeen Property Investors.

Aberdeen says capital values have already fallen by over 45 per cent. However, the pace of capital decline is slowing, with increasing evidence of stabilisation of prime yields.

UK equivalent yields have risen to 9.3 per cent, the highest since 1993.

Aberdeen says property's income return now looks very attractive versus other asset classes, especially cash and government bonds and European property.

It says the UK has been the first and fastest market to correct in Europe, and should be the first to recover. European investor sentiment surveys confirm the UK as the most favoured investment destination internationally.

The sharp fall in sterling has further boosted the appeal of UK property to international investors.

John Danes (pictured), head of UK research and investment strategy at Aberdeen Property Investors, says: "Although rental levels continue to fall, the pace of capital decline is now slowing sharply, and values are stabilising for prime property. High yields are starting to encourage investors to re-enter the market. Property yields have reached the highest level since 1993. This reflects a premium of approximately 600 basis points over ten year government bond yields, the highest in history.

"Overseas investor demand is anticipated to continue picking up. UK property already looks very attractive in an international context, compounded by the sharp fall in sterling against both the euro and the dollar. The UK has been the first and fastest market to correct in Europe, and is widely regarded as being the first market likely to recover. UK yields stand at a premium to most continental European yields, while the UK has the added benefit of a more liquid and transparent market."