The Irish retreat from the London property market continues apace with news that county Down developer, MAR Properties which has been NAMAed has sold an office building in north west London for GBP 8.45m (€11m). The building, Centre Heights, 139-151 Finchley Road, London NW3 was bought by MAR in 2005 for GBP 12.3m. It is not clear if the building is subject to a NAMA loan as MAR had borrowings from Ulster Bank and Bank of Scotland, two non-NAMA banks. The selling agents were Northern Ireland agents, BTW Shiels who seem to be making steady progress with NAMA work.
Last Friday saw the publication of the September 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 0.4% in September 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 since then prices are actually down by 1.3% and in the last 12 months prices have decreased by 3.2%. Overall since NAMA’s Valuation Date of 30th November, 2009 prices have increased by 7.9%. Commercial prices in the UK are now 36.2% off their peak in June 2007. The NWL index falls to 801 which means that NAMA needs to see a blended increase of 24.9% 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 overall outlook for the UK economy is muted in the short term with the country suffering a double dip recession after a quarterly declines in GDP in the first and second quarters of 2012 – 0.3% quarterly contraction in GDP in Q1, 2012 and 0.7% quarterly contraction in Q2, 2012. Most forecasters are now forecasting a 0.2-0.5% decline in real GDP in 2012. The UK has a so-called Office for Budget Responsibility (OBR) which is independent of Government and produces its own economic forecasts and commentary on fiscal policy. The latest report from the OBR was published on 21st March, 2012 and it forecasts GDP growth from 2012-2015 at 0.8%, 2%, 2.7% and 3%, deficit of 8.3%,5.8%,5.9%,4.3%, debt:GDP of 72%,75%,76%,76%, unemployment rate of 8.7%, 8.6%, 8.0%, 7.2%, house prices of -0.4%,0.1%,2.5%,4.5% and inflation of 2.8%,1.9%,1.9%,2%.
Monetary policy is overseen by the independent Bank of England and the current Bank of England rate is 0.5% and has been since February 2009. So far the UK has printed an additional GBP 350bn of new sterling in an economy of GBP 1.5tn – UK inflation since 2007 has been over 15% compared to near-flat prices in Ireland.
About half of NAMA’s portfolio was located in London which has so far performed very well from Aug 2009 to Dec 2010 but has been more subdued over the past year. Supply shortages and money chasing a relatively stable investment have maintained prices and there might even be a short term fillip from this year’s Olympics. Beyond London and the English south east, there is evidence of prices waning amidst sluggish economic growth and stunted lending. NAMA’s strategy for UK assets was revealed in the recently published Comptroller and Auditor General’s report. NAMA expects to dispose of half of its UK assets by 2013, and 40% extra by 2015 and just 10% by 2020. So by 2015, NAMA will have largely exited the UK market.