The survey, which was started at the beginning of 2008, canvasses the views of nearly 300 principals and lenders in the UK commercial real estate investment sector.
Paul Guest, Head of European Research at Jones Lang LaSalle said: "Overall investors' sentiment improved during this quarter. The net balance in confidence rose substantially from -43% in Q4 2008 to -22% in Q1 2009. Nearly half the sample saw no change in their outlook – a result that suggests respondents are not expecting the market to get any worse."
The percentage of respondents who reported they were "less confident" stood at 54% in Q4 2008 but fell to 39% this quarter, also suggesting that investors are becoming less pessimistic. There are also signs of optimism in the percentage of those who reported ‘more' confident; this improved for the first time since the survey began in Q1 2008, when the UK real estate market was already under considerable pressure.
Paul Guest continued: "The current signs of optimism amongst investors could very well be due to the rapid correction in yields we have already witnessed. As a result, many investors, particularly opportunity funds and equity investors are beginning to see value in the market."
Julian Stocks, Head of Capital Markets England at Jones Lang LaSalle added: "The survey shows improving sentiment and we are seeing evidence of this in the market. Investments let to strong tenants for 10 years plus at reasonable rents are proving increasingly liquid. For smaller lots we are now seeing competitive bidding as investors chase yield."
Jones Lang LaSalle believes that a combination of factors could benefit opportunistic investors willing to take the medium term view:
- The immense pressure on REITs to raise equity could result in quality assets coming to the market, improve liquidity and help establish benchmark prices.
- Banks trying to reduce their real estate exposure.
- Retail funds having to meet another round of redemptions.
Julian Stocks concluded: "These factors could result in a rise in activity over Q2 2009 as opportunity funds and equity rich investors compete. However, investors need to be aware that rents will continue to fall this year as vacancy rates increase and the recession bites further. Encouragingly we believe 2009 will be the last year of negative total returns in this cycle."
