UK commercial property – modest growth continues with 0.3% month-on-month increase in December 2010

NAMA is certainly ramping up its foreclosure action in respect of developers with receivers now appointed to (a) Michael McNamara and Company Construction (b) Radora Developments (controlled by Bernard McNamara and Jerry O’Reilly) (c) Paddy Doyle companies (d) Paddy Burke Builders and (e) we learn from last week’s Property Week (expanding on the story reported before Christmas in the Guardian) that GVA Grimley has been appointed receiver in the UK to a consortium which includes Paddy Shovlin and the Fitzpatrick brothers. Of course we may hear today if Irish house builder McInerney is to succumb to receivership following the expiry of its examinership. And of course NAMA was central to the liquidation of Pierse and the Whelan group. We learn from Property Week that one of the Shovlin/Fitzpatrick consortium’s UK assets, One King William Street in the City of London, may be an asset brought to market in the not-too-distant future. And the betting has been that property in the UK would be sold ahead of Irish sales as the UK market has performed better than Ireland’s in the period subsequent to NAMA’s valuation date – 30^th November, 2009.

Today sees the publication of the UK December 2010 IPD Monthly Property Index – the index covering UK commercial property up to the end of December 2010. 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 are still increasing but at a modest rate compared with the end of 2009/start of 2010. The Index rose by 0.3% in December 2010 compared with November 2010. Overall since NAMA’s Valuation Date of 30^th November, 2009 prices have increased by 10.1%. Commercial prices in the UK are now 35.1% off their peak in June 2007. On an annual basis prices are up by 6.9%. The NWL index is now at 897 which means that NAMA needs to see a blended increase of 11.4% 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).

Given that NAMA has valued the loans it is acquiring at 30^th November, 2009 it would seem to make sense if it disposed of UK property first given the pressure the agency is under to generate cashflow and some sales – it hardly makes sense to sell off Irish property which has dropped by 12% since November 2009 unless the assessment is that it might continue to fall and not recover for a considerable period, possibly beyond NAMA’s life expectancy (or that a future recovery in UK property would exceed any falls in Irish property).

The first table below shows the month-on-month % change in commercial property capital values since 30th November, 2009. The IPD index is broken down into three components – retail, office and commercial.  The second table shows the change in value of an index set at 100 at 30th November, 2009 and applying the month-on-month % increases in a compound manner. Overall it shows that commercial property in the UK is worth 10.1% more at the end of November 2010 compared with the end of November 2009.

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