At the time of writing, the sharp deterioration in trading conditions, that set in during second half of 2007, looks set to worsen. Retail property markets have meanwhile experienced a rapid fall in capital values.
Allusions to property market conditions in the early 1990s are perhaps inevitable, but misplaced. This time around value corrections have little to do with retail market fundamentals. Or, at least, it was not events in retail or consumer markets that triggered the recent decline in retail property values.
The yield compression seen over the last two to three years occurred despite the poor rental and sales growth outlook prevailing at the time (growth prospects have been poor for a long while). Indeed, current rental forecasts are not a lot worse than they were a year ago or more. And nothing much has changed on the supply or retailer demand side either. True, the jump in interest rates last year worsened an already weak sales outlook. But downward pressure on property values has traditionally come after, not before, recession sets in: perhaps the reason why property bargain-hunters, in spirit at least, have emerged so speedily.
Of course the current wave of value corrections are not restricted to retail. Yields have moved out in all commercial and industrial property sectors: a knee-jerk response to the turmoil in financial markets. Some further softening of yields looks likely, though - in retail markets - value corrections, in the absence of recession, should be played out well before the end of the year.
With the supply-side picture benign, and no sign at all of the kind of retail sector retrenchment that blighted leasing activity during the early 1990s, rental growth may stay muted but is set to remain in positive territory.
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