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Eurozone debt cloud hangs over UK property investment

The latest Property Snapshot from Colliers International shows, however, that expectations of a UK recession in 2012 have moderated.

It says that prime property pricing is stable but the secondary sector is weakening further with more distressed assets expected to reach the market as discounted loan portfolios are sold to investors who will begin to sell piecemeal.

It also says that the retail sector performance is not improving, further administrations are expected, rents are falling and landlords continue to brace themselves for further stress.

Despite economic weakness, the office lettings market has been seeing more activity. Rents are stable and in London’s West End are linked increasingly to specific buildings, rather than to individual submarkets.

In the industrial sector prime distribution units over 100,000 square feet are still in short supply. Multi-let industrial parks are seeing limited but steady demand. Landlords are still struggling.

House prices are generally stable, although down marginally year on year. Lending volumes and terms are not improving, which is encouraging the growth of private landlords, says Colliers and foreign investors are tracking UK economic fortunes closely.

‘Expectations of a UK recession in 2012 have moderated with a British Chamber of Commerce survey suggesting that a recession is not a foregone conclusion. Further improvement in service sector PMIs from 52.1 in November to 54 in December suggests that there is a strengthening in GDP trend,’ said Walter Boettcher, director of research and forecasting at Colliers.

‘Eurozone developments remain a major risk and continue to distort capital market activity and wholesale funding for banks. The latest Bank of England Credit Conditions Survey shows that only a minor improvement in corporate debt availability is expected in the first quarter of 2012,' he explained.

He also said issues such as EuroHypo and SocGen pulling out of the UK market and falling inflation are set to have an impact.

‘Despite improved UK economic sentiment, eurozone financial issues continue to distort capital markets and undermine consumer confidence,’ he concluded.