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LONDON-The yield shift seen since the beginning of 2002 has further to go, according to FPDSavills. William Newsom, head of the firm’s commercial valuation team, said that relative to the cost of money, commercial investment property is looking under-priced.

‘The property investment market is now moving more in step with the finance markets and the low cost of money is feeding through to property yields,’ said Newsom. ‘This is taking place against a background of a severe supply/demand imbalance in the property investment market.

Newsom said there is strong competition between various types of investor, including debt-backed purchasers, pension funds and insurance companies. Also in competition for scarce product are the opportunity funds–with $65 billion to spend, much of which is targeted towards Europe–and the German open-ended funds, whose net inflow of funds to invest during quarter one 2002 alone was €6.45 billion ($5.8 billion).

However, despite this strong demand, there is a severe lack of investment stock available. Property owners are realising that it is far better to keep hold of what they already have when values are likely to rise further.

Debt-driven purchasers no longer have the market to themselves, but they are still a potent force in the market and able to raise high levels of loan. Research by De Montfort Universite, commissioned by FPDSavills, shows that during 2000 and 2001, the number of lenders prepared to go above 85% loan-to-value has increased by more than 50%. Some lenders will now go above 90% in certain circumstances.

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