Timing ousts location for canny property investors

Only three things matter in the property market, they used to say, location, location and location. That may be true in the long run, but in the rollercoaster markets of the past few years the canny investor would have done better to concentrate on timing, timing and timing.

Between September 1992, when sterling tumbled unceremoniously out of the ERM, and the first quarter of last year, share prices in the sector almost trebled in value. Since then, they have fallen by almost 30 per cent.

Stock market investors are not alone in wondering what has gone wrong over the past 12 months. The surveying profession is nervously looking over its own shoulder as it struggles to get to grips with the new reality of over-supply, low volumes and a vicious price war to hold on to the little business that is available.

Surveyors are salesmen, whose stock in trade is talking up their own book, so it is perhaps not surprising that much of the research they produce suggests the market is poised for recovery. But it has been poised for a long time now, with little evidence that the light at the end of the tunnel is anything but a distant pinprick.

A rising property market needs either rising rents or falling interest rates, but preferably both. It appears that neither is likely this year.

According to Legal & General, which said recently it planned to reduce its exposure to commercial property, the outlook for yields is gloomy.

Although not umbilically linked to base rates and gilt yields they do tend to track those two indicators closely and the fight to restrain inflation means the trend for both is more likely upwards than downwards over the next 12 months.

David Shaw, at L&G, believes the long-run differential between property and gilt yields of about 1.5 per cent is reasonable in a low-inflation environment. With gilts offering 8.75 per cent, investors will accept the current 7.25 per cent available from property, because it offers the prospect of income rising eventually, but probably no less. Hillier Parker reported recently that yields have been rising for two quarters.

As far as the second component of a property's value is concerned - rents - a two-tier market is rapidly forming with demand for top-quality space driving higher the cost of occupying the very best buildings in prime locations.

For the rest, however, the supply overhang from the last development is expected to keep rents in the doldrums.

Legal & General thinks the greater depth of the recession compared with the slumps of the mid-1970s and early 1980s means the rental growth of perhaps 20 per cent that would normally be expected at this stage in the economic cycle is more likely to be just 5 per cent overall this year.

Other depressing effects on the market include the increased focus of investors on the real cost of depreciation and obsolescence on buildings in the absence of inflation pushing nominal values ever higher.

The Chancellor's decision to phase in the otherwise highly beneficial impact of lower business rates on occupiers in the South-east has also removed one hoped-for catalyst for higher rents.

That is all bad news for investors, both direct and indirect through quoted property companies. But it is worse news for the surveying industry, which is only just coming to terms with the fact that current market conditions are normal and the boom of the late 1980s the aberration.

Share prices of the handful of quoted surveyors have slumped over the past year or so as the reality of loss-leader tenders for valuation and agency work has dawned on the market, adding fuel to the already feverish speculation about possible takeovers in the sector.

Like the accountants before them, surveyors accept that the industry is moving towards a far-reaching consolidation that will leave a handful of large, global players able to service increasingly international clients.

Start your day with The Independent, sign up for daily news emails
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

John Palmer: 'Goldfinger' of British crime was murdered, say police

Murder of the Brink’s-MAT mastermind

'Goldfinger' of British crime's life ended in a blaze of bullets, say police
Forget little green men - aliens will look like humans, says Cambridge University evolution expert

Forget little green men

Leading evolutionary biologist says aliens will look like humans
The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

The Real Stories of Migrant Britain

An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

Dying dream of Doctor Death

Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy
UK heatwave: Temperature reaches 39.8 degrees on Central Line - the sweatiest place in London

39.8 degrees recorded on Tube

There's hot (London) and too damn hot (the Underground). Simon Usborne braved the Central line to discover what its passengers suffer
Kitchens go hi-tech: From robot chefs to recipe-shopping apps, computerised cooking is coming

Computerised cooking is coming

From apps that automatically make shopping lists from your recipe books to smart ovens and robot chefs, Kevin Maney rounds up innovations to make your mouth water
Jessie Cave interview: The Harry Potter star has published a feminist collection of cartoons

Jessie Cave's feminist cartoons

The Harry Potter star tells Alice Jones how a one-night stand changed her life
Football Beyond Borders: Even the most distruptive pupils score at homework club

Education: Football Beyond Borders

Add football to an after-school homework club, and even the naughtiest boys can score
10 best barbecue books

Fire up the barbie: 10 best barbecue books

We've got Bibles to get you grilling and smoking like a true south American pro
Wimbledon 2015: Nick Bollettieri - Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power

Nick Bollettieri's Wimbledon Files

Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power
Ron Dennis exclusive: ‘This is one of the best McLaren teams ever – we are going to do it’

‘This is one of the best McLaren teams ever – we are going to do it’

Ron Dennis shrugs off a poor start to the season in an exclusive interview, and says the glory days will come back
Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

Making of a killer

What motivated a shy student to kill 38 holidaymakers in Tunisia?
UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

Just when you thought your commute couldn't get any worse...

Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

The Real Stories of Migrant Britain

Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
Cheaper energy on the way, but it's not all sunshine and rainbows

Cheaper energy on the way, but it's not all sunshine and rainbows

Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most