BNP Paribas Real Estate – UK to see slow but definite recovery, this is not a ‘bubble’

Keith Steventon said: “There are a number of factors at work that could imply the signs of recovery we are experiencing are a bubble: Capital values have increased rapidly since reaching the trough in July and rose by 1.9% in a single month in October, with a further increase of 2.4% in November and we expect the December figures to reveal another jump of 2.6% when published later this month. The investment market has continued to surge forward and has improved month on month throughout the year with an increased amount of money available and the re-emergence of under bidders. In addition to this money remains cheap and while investment activity has picked up and prime yields have hardened rental values are continuing to fall, all of which is causing concern.

Steventon continued: “In contrast to this there is much evidence to suggest that we are not in a bubble and are beginning to see the signs of a slow and gentle recovery: The uplift that we have seen in capital values has not been as pronounced as some perceive it to be and whilst there have been some modest increases capital values still remain lower than in 2008 and we will see a flat market overall by the end of the year. The increased activity that has been seen in the investment market has been concentrated at the prime end of the market and hasn’t filtered through to the second and tertiary sectors and whilst funds have begun to buy up stock again the funds are rationing their spending. We must also acknowledge that there was an over-reaction in 2007 and what we now have is a major readjustment to those exaggerated risk premiums.

Steventon concluded: “There is always a risk, of course, and this is that the economic recovery that everyone is looking towards is not sustained and this brings any burgeoning property recovery down with it. Without any other economic recession to compare like-with-like, it really is unknown territory.”