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11.11.2009
A key theme of the RICS International Valuation Conference held on Tuesday was the importance of focusing on the tenant.
This view is firmly supported by Richard Moir head of valuation at Gerald Eve who explained: “The most important factor to the yield compression we are currently seeing in prime markets is the tenant’s covenant strength and their unexpired lease length. Conversely, their negotiating strength in this market of relatively weak occupier demand and declining rents means that they are able to make demands of landlords such as turnover rents in shopping centre schemes which requires evaluation of additional associated risks. Due diligence and understanding the drivers of market prices is more critical now than ever.”
Moir said it was a difficult enough job for valuers in the 10 months or so since the collapse of Lehman Brothers when there was very little market evidence of values but everyone was aware most drivers of value were negative. But the current market is equally challenging he went on. “Despite the dramatic yield compression we are currently seeing in prime investment markets, started by overseas buyers, and more transactions, I think that valuations across the piste remain equally difficult now as some drivers are going in different directions.
“Vacant possession values remain constrained by a weak occupier market, albeit improving in some areas, rental growth is still generally negative, asset quality is emphasised and holding costs in particular, empty rates can be a real cost. Development markets generally remain depressed, albeit again with signs of life. There are reasons to be cautious.
“On the other hand, demand for prime long dated stock is exceptionally strong which has driven down prime yields particularly where rental indexation is available. We are also seeing renewed interest and yield compression in alternative asset classes such as healthcare where long indexed leases are in line with business models”. Moir added.
Gerald Eve, chartered surveyors and property consultants, make or save money from property - acting for around 40% of the FTSE100 on property asset management, agency and professional matters.
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