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LONDON-An improving economic backdrop and signs of improving rental growth should be good news for property investors. But according to new research from Gerald Eve it is now the cost of money that maters more to investors than property fundamentals, so despite the good news from occupiers, yields are likely to move out, the agent forecasts.

Economic growth is forecast to reach 2% this year, and employmentgrowth in the key banking/finance sector has recovered strongly in 2003, according to Gerald Eve’s Investment Brief. And there is now evidence of an upturn in the rental cycle. Yet as the occupier market begins to recover, yields are expected to moveoutwards.

The rep[ort says an increase in finance rates since June has focussed attentionupon the sustainability of debt-backed investor demand. Lenders haveimposed more demanding loan terms, which has moderated geared investoractivity. Consequently, Gerald Eve predicts that capital growth next yearmay not match rates seen in 2003.

Nevertheless, there are many otherequity-based investors who are keen to acquire property in the event of anoutward yield movement, according to Fiona O’Callaghan, head of research at Gerald Eve. “We believe that less dependence on geared investors, as a consequence of higherswap rates, will provide a more sustainable environment for the investmentmarket,” she said.

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