Morley eyes UK property market slowdown

By Laurence Fletcher

LONDON (Reuters) - Investors have already seen the best of the capital returns from the UK property market and it is hard not to see the market slipping back, one of Europe's biggest property fund management firms said on Wednesday.

"Clearly the capital growth we've had in the past is behind us. Things are pretty flat, and people are unclear if it will stay fairly flat or whether it will fall," Nick Mansley, director of property strategy and indirect investment at Morley Fund Management, said at the Reuters Real Estate Summit in London.

"Some parts are showing rising values and some parts are showing falls. It (the property market) will be influenced by swap rates and rising yields, which have risen so rapidly. The market can't shrug these off ... It's difficult to see the property market in the UK not slipping back."

Britain's commercial property market, buoyed by the low cost of borrowing and strong demand from institutional and retail investors, has returned 18-19 percent in the past two years, according to index compiler Investment Property Databank (IPD).

Rising interest rates in the UK have made the yields -- the rental income relative to the capital value -- offered by commercial property less attractive.

However, Mansley said UK interest rates were unlikely to remain above 6 percent for a sustained period, which would help support property prices, while UK property offered a relatively secure income stream.

On Monday IPD told the Reuters Real Estate Summit that the UK market was set to deliver low double-digit percentage returns this year.

Mansley also said flows into UK property funds had been affected by investors locking in gains, and by the availability of other property funds investing in Europe and worldwide.  Continued...