Recently in Capital values Category

EGTV talks to chief executive of British Land Chris Grigg, Lloyds Banking Group's Richard Dakin, Hammerson chief executive David Atkins and JP Morgan Cazenove head of real estate Robert Fowlds about their views for property's future.

Speaking from the EG Investment Summit at the King's Fund in London today, the four outline the future of their companies, investment in the sector, and which markets are attractive - or not - to investors and developers in the current economic climate.

The property derivatives market is predicting total returns will plummet next year to -0.32%.

The figures were revealed yesterday at the IPD/IPF Quarterly Briefing.

IPD client manager Kate Pedersen said derivatives pricing from ICAP Property Derivatives showed the market is expecting a total return of 9.75% this year, but this will tumble to -0.32% next year.

For more on the Q2 derivatives trading volumes and a synopsis of the IPD Quarterly Index returns for Q2 listen to the EGi podcast interview with IPD research director Malcolm Frodsham and client manager Kate Pedersen by clicking here.

British Land continued to warn the near-term prospects for the property sector were uncertain in the quarter to 30 June.

The UK's second largest REIT said that its portfolio had risen 1.4% to £8.7bn, compared with a 16% rise in the previous two quarters.

JPMorgan Cazenove analysts say BL's results were in line with expectations and confirm the trend of slowing capital growth.

"We see three key points in these results: (1) Q1 results were in line with our expectations: Adj NAV of 515p vs. JPMCe 520p and operating performance strong with occupancy up from 97% to 97.8% and like-for-like income up by 1.9%, (2) Property values rose by 1.4% over the quarter (vs. JPMCe 1.7%), which confirms our forecasts of slowing capital growth and risk of (small) dip in values (reflected in our Mar-11e Adj NAV of 513p). We see a risk that this will result in some profit taking today given the recent bounce in property stocks, and (3) However, any significant (sector) retreat should be viewed as a buying opportunity in our view, because of British Land's 12.5 years lease length (particularly due to the recent fall in bond yields; UK 10y 3.26%) and favorable sector exposure," said analyst Harm Meijer.

Analysts at JPMorgan Cazenove are expecting a "sharp slowdown" in capital growth following Great Portland's interim management statement late last week.
In a note analysing the company's news, JPMorgan said it expects any further gains to come from rental growth, not yield shift, and say Great Portland's own outlook is for a "less urgent mood" to persist over the remainder of the year.
The broker said Great Portland's IMS was "bang in line with our expectations" with NAV of 295p compared with its expectations of 296p, driven by 4.6% capital growth in the quarter.

Following the company's conference call with analysts, JPMorgan came back with these points:

Legal & General Investment Management has warned that expected government policy tightening threatens to send the UK economy back into recession in 2012.
At the company's monthly Fundamentals briefing, economist James Carrick said: "The sharp cuts in public spending that the government made in the recent emergency budget represent the largest fiscal tightening since the Second World War.
"Government figures suggest the gap left by these cuts will be filled by the biggest private sector boom ever - given how tight lending conditions remain, this is far too optimistic."
LGIM said its research suggests a 10% chance that year-on-year (YOY) economic growth is negative in a year's time and that probability rises to 33% for 2012.
Since these figures are calculated YOY, it suggests that the UK economy may begin contracting as soon as the second half of 2011.
Carrick says the economy is not yet strong enough to have the 'automatic stabilizers' of low taxes and high spending removed.
The company predicts that official interest rates will be unchanged at 0.5% throughout next year.

Research firm Capital Economics has released an update today on the UK commercial property market saying it believes yields are now close to a floor based on recent data from IPD and Strutt & Parker on leases.

Economist Kelvin Davidson says:

With the economy in recession for much of 2009, the latest data from Strutt & Parker and IPD suggest that landlords fared reasonably well last year, retaining a high proportion of tenants and in many cases even raising rents at lease expiry. Given that the economic backdrop remains fragile, however, we doubt that investors will feel confident enough about the near-term security of income streams to lower risk premiums. Thus, our view is that property yields are now close to a floor.

• The S&P/IPD Lease Events Review mainly focuses on factors which affect the income streams accruing to landlords from existing leases, e.g. the use of break clauses, changes in void rates and duration, tenant defaults etc. One positive result for landlords to come out of the latest review was that 38% of leases expiring in 2009 (weighted by rental value) were renewed by the existing tenant, slightly higher than 2008's result (33%) and well above 2007's figure of 17%.

Yesterday I headed along to Henderson Global Investors' offices on Bishopsgate, EC2, for their Global Property Seminar.

Three speakers told us about their view of the markets in North America, Asia-Pacific and Europe.

Click here to listen to the EGi podcast with Henderson's senior investment analyst, Europe, Michael Keogh about his views on the outlook for European commercial property and Henderson's investment strategy in the region.

Among the highlights:

North America

- Positive US economic growth story; property fundamentals seeking stabilization

- Price correction offering attractive entry points for visitors

- Focus: apartments offer the most favourable fundamentals & financing.

Asia-Pacific

- Risk of overheating in China alleviated

- Economy operating at sustainable growth rate; cap rates likely to compress

- Focus: China retail, Sydney & Singapore offices.

Europe

- Clear polarisation of markets, but window of opportunity still exists

- Commercial assets remain attractively priced

- Focus: Central London offices, European Retail (shopping centres & retail warehouses).

Nomura Real Estate analyst Mike Prew has posted an interesting piece of information coming from today's final results of TR Property Investment Trust.

Prew says the Trusts fund manager Chris Turner, of Thames River, stated at the results today:

"In terms of the outlook for commercial property values, the mood of the industry is generally that the recent surge in pricing will moderate and come to a halt over the summer.

"Derivative market pricing for the IPD annual index futures suggests UK average capital growth will be around 4% in 2010. The IPD monthly index has already recorded average capital value growth of 4.5% in the January to April 2010 period, so the implication is that the rest of 2010 will show a 0.5% decline.

"Futures pricing also implies a 2% annual capital value decline in both 2011 and 2012."

Land Securities' shares have fallen almost 4% today despite reporting a solid set of results.
The market may have been slightly disappointed that Land Secs didn't follow British Land's lead by surprising investors with better-than-expected figures.
Instead, Land Securities seems to have been bang in line with everyone's expectations. Investors can be harsh when companies don't keep pace with their rivals.

Analysts have begun giving their views on the company's results.

JPMorgan Cazenove's Harm Meijer says:

"Land Securities' full year results were bang in line with our expectations with Adj NAV of 691p vs. JPM-Caz 683p (+1.1%) and underlying pre-tax recurring profit at £251.8m vs. £251.6m. After yesterday's strong full year results of British Land, the market may have hoped for a NAV above £7, as British Land reported +13.5% capital growth (vs. Land Securities 10.3%). However, we believe that Land Securities is a play for the next stage (in the cycle) once rental growth materializes and it can benefit from its strong development potential and plenty of opportunities in the portfolio. The stock trades at 8% discount to Mar-10 NAV and, for now, we remain Neutral (based on valuation)."