Stirling build extensions and renovations

The Edinburgh commercial property investment market is expected to show a turnaround this year, according to Jones Lang LaSalle.

The investment market is forecast to experience a slow start this year, but investors are likely to return selectively towards the end of the first quarter, especially if base rates are cut further. Five year swap rates are now at 5.16%, back at levels last seen in the summer of 2006.

Overseas buyers will emerge once again as key players in the Edinburgh investment market due to softer yields in the UK and the yield gap with Europe closing. Lower base rates will help this group of investors too.

Jones Lang LaSalle said banks will also return to the market in mid-2008 once the sub-prime problems are properly identified. Buyers with dormant equity and strong banking relationships are tipped to make opportunistic purchases from the first quarter onwards.

Alasdair Humphery, director of Capital Markets at Jones Lang LaSalle's Edinburgh office, said: "It is clear we are right in the middle of a market re-rating and this should come as no surprise for those who have been around a while. Over the last 24 months, the weight of money compressed prices to unsustainable levels and so sooner the sanity returns through a price correction, the sooner buyers will have the confidence to re-enter the market."

He added that active buyers in the last four months had tended to be opportunistic, buying at levels they believe are safe even if the market falls another 5-10 per cent or buying strategically to add to existing holdings.

"2007 will be seen as a major turning point for investment markets. The signals were there in May, but the credit crunch really began biting in July we expect end of year valuations will be at least 10 per cent down."

The office sector has been affected by the downturn, although the impact in Edinburgh was softened by a strong occupational market. Firms looking to re-locate to new space in the city centre face a reducing supply of Grade A office accommodation and rising rental levels, he said.

Source: Jones Lang LaSalle
www.joneslanglasalle.co.uk