Away from our own economic woes, we might have forgotten that the British economy is fragile and looks to be heading into a triple dip recession. Yesterday, CoStar the UK commercial property portal reported a Deutsche Bank outlook report which suggests that there is a further 20% decline in prospect for the UK’s secondary commercial property market in the next three years, mostly caused by a lack of credit. It really does seem that NAMA’s general strategy of selling off its UK assets sooner rather than later was sound.
Today sees the publication of the December 2012 IPD Monthly Property Index for the UK. The IPD (Investment Property Database) index is the only UK commercial index referenced by NAMA’s Long Term Economic Value Regulations (Schedule 2) and is used to help calculate the performance of NAMA’s “key markets data” shown at the top of this page.
The Index shows that capital values fell by 0.3% in December 2012, which follows declines averaging 0.3% per month since December 2011. Prices reached a peak in the UK in June 2007 and fell steadily until August 2009 when a rally started. Prices then increased by 15% in the year to August 2010 but have since been declining and are down by 4.1% in the last 12 months prices. Overall since NAMA’s Valuation Date of 30th November, 2009 prices have increased by 6.8%. Commercial prices in the UK are now 36.7% off their peak in June 2007. The NWL index falls to 790 which means that NAMA needs to see a blended increase of 26.7% in property prices across its portfolio to break even at a gross profit level (taking into account the fact that subordinated bonds will not need be honoured if NAMA makes a loss).
The table below shows the three subsectors in UK commercial property with an index for all three at NAMA’s valuation date of 30th November 2009 of 100. Offices have been relatively buoyant whereas industrial premises like factories and warehouses have been relatively flat.
The UK economy is suffering difficulties almost every bit as challenging as those in the EuroZone and Ireland. Sure, they have their own currency and they’ve printed GBP 300bn of it in an economy with a GDP of 1.5tn, to help inflate their problems away. And yet they appear poised for a triple dip recession. In December 2012, the UK’s independent Office for Budget Responsibility published its latest fiscal outlook which forecasts GDP for 2012 at -0.1%, 1.2%, 2.0%, 2.3%, 2.7% and 2.8% (but as with all economic forecasts in the long term, all forecasters forecast a peachy outlook). Deficit:GDP is forecast as -5.7%,-4.6%,-3.7%,-2.8%,-1.4% and -0.4% between 2012-2017. Debt:GDP is forecast at 90.3%, 93.5%, 96.3%, 97.4%, 96.6% and 94.4%. Inflation is forecast at 2.8%,2.5%,2.2% for 2012-2014. It expects commercial property to change -2.1%, 1.0%, 3.1%.3.6%, 3.9% and 3.5% in 2012-2017.
Co Star also reporting that Wells Fargo are going to start proper lending for prime commercial property in the UK and that they were one of the banks which refinanced the Maybourne loans.