Report backs NAMA approach for UK

29 May 2009

By Larry Ryan

As the UK commercial property market shows signs of stabilisation, a PricewaterhouseCoopers (PwC) report recommends that the UK should follow Ireland’s lead and take the NAMA approach to the toxic assets problem.

Rather than adopt the “bad bank” approach, the UK has guaranteed some assets and taken a direct stake in several banks.

However, a paper written by John Garvey, banking and capital markets leader at PwC, insists that the bad bank approach – currently favoured by Germany, Switzerland and Ireland – has a record of success. Garvey says that avoiding this route could prevent the UK economy making a full recovery.

“The longer troubled assets remain on bank balance sheets, the longer the crisis tends to last,” he says.

Meanwhile, the UK commercial property market is beginning to show real signs of steadying. The latest quarterly report by real estate advisers DTZ shows that transaction volumes in the UK remained flat in Q1 2009 – matching the £3.5 billion in transactions processed in Q4 2008.

The report also highlights the stabilisation in yields in central London and other prime UK markets.

The UK results contrast sharply with figures elsewhere in Europe, particularly France (where activity fell by 70 per cent) and Germany (where transactions were down 50 per cent).

International property consultants Cluttons echoes the optimism in its Quarterly Property Market Update. It notes that yields are stabilising for prime UK investment property and investors are returning to the market.

Cluttons senior partner Bill Siegle comments: “While the economy remains fragile, the few crumbs of positive economic data announced recently appear to have persuaded some investors that we have reached the bottom of the cycle. These cash-rich investors have begun to return to the market, eager to take advantage of some very favourable yields that are on offer on prime properties with secure income streams.”

However, outside of prime properties, the outlook is not yet as favourable. Demand for office space in central London remains low and rental values have fallen sharply.

Siegle adds: “There is likely to be another two years of pain to be felt in the occupational market before rents start to turn around.”

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