Investors poised to pile into property

MORE than pounds 10bn is waiting to be invested in the UK property market, which would revitalise the sector and generate a boom similar to that of the 1980s, according to a report from surveyors DTZ Debenham Thorpe.

DTZ, part of the team that advised Greycoat shareholders to accept the unsuccessful bid from Postel because it believed the company would have trouble selling its properties, claims the prices of commercial properties are soaring.

The report, produced by John Rigg, DTZ's head of research, says property yields (the rental income of a property divided by its price) have dropped by around 2 per cent since the beginning of August. This would imply that prices have increased by more than a fifth in just two months.

Mr Rigg believes institutional investors are desperate to invest in the property market, and have earmarked around pounds 7bn for this purpose. In addition, property companies, many of which have raised money from rights issues in recent months, have around pounds 1.75bn, while overseas investors are likely to put in about pounds 2bn.

He says investors have been attracted by the relatively high yields on property compared with shares or bonds, and by the devaluation of sterling, which has made British properties cheap when compared with those on the Continent.

The excitement within the market was demonstrated by the surprise announcement by Scottish Metropolitan Properties that it had sold its Saltire Court development in Edinburgh for pounds 53.1m, 13 per cent more than the asking price when the site was put on sale. The prestigious, but only partially let, site in the lee of Edinburgh Castle attracted five bids at above the asking price.

Chris Turner, property analyst at stockbroker Barclays de Zoete Wedd, says the market is moving so quickly at the moment that it is hard to keep up with the excitement.

He says the Saltire Court deal is just one example of the bidding rush that has been prompted by the weight of money targeted at the property sector.

'Some property companies are putting buildings on sale, then finding they have so many bids that they take them off the market to put them on again at a higher price,' added Mr Turner.

He also said that some investing institutions are buying property shares as a stopgap to park their money while they try to find a way to tie up the money in bricks and mortar.

(Photograph omitted)

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