Since the start of the economic crisis, the volume of commercial property transactions has fallen to an all-time low.
In some cases, asset values have fallen by as much as 50%, and at one point the market stagnated. But those who managed to survive the downturn believed values had hit the floor, so started returning to the market.
Vulture funds sought opportunities that they believed would present the least risk and the best long-term growth prospects.
This led to an insatiable hunger, mainly from institutions and overseas buyers, for vanilla-type investments – properties let to strong covenants, on long leases and in prime locations.
At the start of 2009, commercial properties that were let to banks as tenants were being offered at yields of around 9%. Those brave enough to acquire these deals with the belief there would be no further economic meltdowns will have seen the value of their investments nearly double in just 18 months.
But the secondary market has seen no such recovery, so demand for retail, office and industrial property – which is let to firms with more questionable accounts and on shorter leases – remains thin on the ground.
Those seeking secondary stock are typically cash-rich investors looking to buy risk where returns could be as much as 400% higher than leaving their cash on deposit.
But most investors today, still mindful that the secondary market could fall further due to increased insolvencies and a dearth of debt, are sticking with vanilla for now.