Our comment on the industrial property market

Whilst the period since Christmas has seen increased levels of activity in the market (certainly greatly increased over last winter), the majority of deals appear to be in leasing and cash flow properties, with very little action in the owner occupier sector.

There is anecdotal evidence of down-sizing in the leasing market as businesses seek to reduce fixed costs, whilst the investment market is being driven by the increased differential between rental returns and bank fixed interest rates. It is a fascinating comment on both risk aversion in our business community, and the tenor of professional advice, that at a time when the cost of borrowing is lower than it has been for some time, and vacant property values have slumped, that business owners are shying away from the opportunity to own their own premises. Yet at a time when building values were peaking, and interest rates were on a par with yields, potential owner occupiers were queuing up to be their own landlord. Very often business owners turn for guidance to so-called "professional" advisors, who provide advice which is too often merely a reflection of the latest headline in the popular press.

Of course, if human behaviour was always logical then life would be much less interesting.

In the investment market, we are seeing some small differentials open up to reflect building quality and tenant strength. This is a welcome and long overdue trend. Commonsense would dictate that these differentials become even greater to reflect real disparities between various grades of property investments and associated risk. The major problem in the investment market is the lack of opportunities. In most cases investors will hold tightly good properties with good tenants, when the alternative for their cash is 5% in the bank. And even if they are leveraged, with falling interest rates many propositions which previously have been marginal have now become cash flow positive.

Against this backdrop of continuing market adjustments, the banks are doing their best to prove what Robert Frost once said: A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.