Hogan Lovells Research Gives Insight into Real Estate Trends
London, 15 November 2010:
• Investment and litigation both on the up
• Confidence and growth expected to return within the next two years
• Commercial real estate values will improve in the next 12 months
• Lettings pip development in recovery race
Research by legal practice Hogan Lovells' real estate team, conducted for the second year running, shows cautious optimism returning to the market. The research is based on a survey undertaken among 160 senior executives in the real estate market, working across a number of sectors. The findings provide objective insight into current trends, and valuable comparisons with the previous year, as the industry looks from recession to recovery.
Confidence and growth are expected despite government cuts
85% believe we will see a return of confidence and growth in the commercial sector within the next two years, compared to less than 20% the previous year. However, 88% of respondents thought government cuts in public spending would have either a negative or very negative effect on the commercial real estate sector.
Investment is on the increase
Nearly half (46%) of respondents state that they are continuing to invest. This compares with 61% of respondents in the 2009 survey who said that they or their clients were postponing investment.
The next 12 months will see a rise in values
More than one third of respondents also indicated that they expect UK commercial real estate values to increase by 5% or more in the next 12 months, with only 9% responding that they expect a decrease of more than 5%. In the 2009 survey 79% said they expected to see a decrease of more than 5%.
Retail and office lettings tipped to head recovery
In terms of growth, lettings pip development to the post in every sector. Retail letting is one of the first sectors tipped to recover, followed by offices - regional, West End and City.
Litigation floodgates are only partially open - expect higher levels
In 2009, when asked if an increase in litigation was expected in the next 12 months 77% of participants responded yes. In the 2010 survey, only 33% of participants claimed to have seen an increase in the past 12 months - with 46% now suggesting it will come in the next year.
In both years, professional negligence was a key area where litigation was expected, at around 20% (20.20% and 19.09% in 2009 and 2010 respectively). Landlord and tenant litigation also ranked highly in 2010, at 20%, with insolvency expected to account for 16% of litigation - both reflecting the increased activity in these areas in the current market.
Michael Stancombe, Global Co-Chair of Hogan Lovells Global real estate team, said:
"There is cause for optimism looking at the results of our survey this year. Despite anticipating government cuts in public spending, which we have now seen on 20 October, 85 per cent of respondents expected a return of confidence and growth to the sector in the next two years and over one third expect commercial values to rise by more than 5 per cent in the next 12 months. These are positive signs, however we can only wait and see the impact that these cuts, now officially announced, will have.
Government intervention will be crucial to any recovery and it is interesting to see that, according to the survey, any possible actions around a reduction in stamp duty on commercial property transactions or the abolition of rates on empty commercial properties are perceived as the most positive actions government could take, earning 82 and 85 per cent "positive" or "very positive" scores respectively."
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