Can Stateside Property Positivity Bleed Over The Atlantic?

Real estate investors stateside are becoming more confident. The UK and the US have held hands so many times during the international financial crisis, showing similar trends at similar times...

Any adverbs used to describe the US recovery will likely be synonymous with slow and/or painful, but when you look at Greece, Spain, Portugal, Ireland and even the UK to a certain extent you are forced to take the stand that any recovery is better than no recovery or worse, a second dip recession, which looks less and less likely for the US with every passing month.

As a result, real estate investors stateside are becoming more confident. The UK and the US have held hands so many times during the international financial crisis, showing similar trends at similar times, unfortunately few (read none) of them very positive. Can real estate investors once again link hands with our "special partners" across the pond in feeling positive about investment prospects in our fair nation?

My gut says yes, we will see a similar rise in sentiment in the coming months. It isn't by magic or even wild coincidence that we experience many of the trends in our economy and real estate market as they do in the US; it is because we share similarities. We both have control over our own currency and (in our case near-complete) control over our own fiscal and monetary policy. When the US was printing money to combat the recession, we fired up the presses on our end for example.

But it isn't just that. We are both great nations with a rich history and a great entrepreneurial spirit. The US has its sheer size, but we have London, which is one of the most important financial centres in the world, and we also have one of the strongest currencies in the world. These, among many other things give investors reasons to feel confident. While our banks are in trouble and can't lend, these things are part of the reason why young companies are able to find finance on the private sector, while Greek companies struggle to stay afloat.

One thing we don't currently share with the US is a recent upturn in the pace of economic recovery. Job growth in the third quarter of 2011 beat expectations, with 241,000 private sector jobs added in September and October. In total 1.8 million private sector jobs have been added this year in the US, according to a recent report by Marcus & Millichap in Calabasas, Calif. Retail sales, excluding auto and gas, also beat Q3 expectations with a year-over-year increase of 6.1 percent in October, according to the U.S. Department of Commerce.

These figures aren't going to knock anyone's socks off, but they do point to an increasing pace of recovery in the US for this year. According to a report into the fourth quarter of 2011 by CBRE the commercial real estate picture is also improving, with falling vacancies in the office, industrial and multi-family housing sector, and stabilisation in retail availability levels.

Meanwhile the UK seems to be going in the opposite direction, worse than expected. Today's 0.6% decline in industrial production figures for November was worse than expected, and more downbeat than the latest private business surveys. Unemployment is becoming a bigger problem and experts are predicting further growth in unemployment this year. It is hardly surprising that commercial real estate outside London is not doing too great.

However, there are some signs of hope on the horizon. Many analysts believe that the GDP figure will be slightly negative for Q4 2011, but that it will turn around again in Q1 2012 thus we will avoid a double dip recession. This is based mainly on the latest purchase managers' index for December, which showed a "surprisingly buoyant" picture according to the report's author. PMI for the services sector, which accounts for 70% of UK GDP rose to 54 (any figure over 50 indicates growth), for the construction sector the PMI rose to 53.2, and the manufacturing PMI rose to 49.6.

Neville Hall, at Credit Suisse, said: "It does suggest that, after what looks as if it could be a pretty poor fourth quarter of 2011, as if the economy has regained a bit of momentum going into 2012."

"And that probably means that even if the fourth quarter growth numbers are negative the UK could successfully skirt recession rather than go through another double dip."

According to the latest poll of business confidence matched September's two and a half year low, investor sentiment is also in the pits (outside London). Based on this sentiment is unlikely to fall any further and this alone makes a rise more likely. Prices are also still severely depressed, which reduces risk, and the government's massive commitment to infrastructure development. All of which could fuel investor sentiment. Time will tell.

- Monday 16 January 2012

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