Real estate investment levels fell in the fourth quarter of 2007 to a third of the levels recorded in the first three quarters of the year, largely due to the turmoil in the financial sector. Scarcity of debt and a marked shift in investor sentiment towards property pushed the All-Property average yield up by 50 basis points in the final quarter of the year, according to CBRE's latest research report. This is the largest quarterly shift in the benchmark Prime Yield series since 1990.
Real estate investment levels fell in the fourth quarter of 2007 to a third of the levels recorded in the first three quarters of the year, largely due to the turmoil in the financial sector. Scarcity of debt and a marked shift in investor sentiment towards property pushed the All-Property average yield up by 50 basis points in the final quarter of the year, according to CBRE's latest research report. This is the largest quarterly shift in the benchmark Prime Yield series since 1990.
At 5.7%, the UK All Property average prime yield has risen 90 basis points from the series low at the beginning of the year. This is the highest yield recorded since Q1 2005.
Further compounding the negative yield impact, rental value growth slowed considerably to just 0.7% in Q4. This slowing is primarily due to Central London offices, which having recorded growth of 6.9% in Q2, slowed to just 1.8% in Q4.
Benchmark gilt yields compressed another 40 basis points in Q4 to 4.6%. Relative to gilts, property now enjoys a positive yield gap of over 100 basis points, compared to a negative gap in Q2 -the highest premium in over two years.
Economic uncertainty continues to threaten the UK growth outlook, with further interest rates cuts expected in the near term. The five-year swap rate fell 50 basis points in Q4 to 5.1%, and is now below 5%, bringing the average prime yield more in line with the cost of borrowing.
