UK commercial property values will have halved by 2010, predicts RICS

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by Lin Freestone

The Royal Institution of Chartered Surveyors (RICS) has predicted that capital values in the commercial property market will fall by at least 16% in 2009, and continue to fall in 2010 by up to 10%.

Capital values have already fallen 25% since the credit crunch began in the middle of 2007. If the RICS prediction proves to be correct, the value of commercial property in the UK will have fallen more than in the recessions of the 1970s and early 1990s.

In the RICS’ commercial property forecast published today, Oliver Gilmartin, senior economist at RICS, said that we are only half way through the price correction in the commercial property market, with values set to fall through 2009 and 2010 as rental declines gather pace. Transaction activity is set to rise, however, as more sellers become willing to accept lower bid prices.

The report says that rising defaults will prevent a near-term recovery, and the investment market will be sluggish for some time to come.

The office sector is likely to see the biggest decline, with capital values expected to drop a further 30% to 35% bringing peak to trough declines of more than 60%.

RICS expects that capital values declines in the industrial sector will be less pronounced, falling a further 15% to 20% over the next three years. The industrial sector could be helped by a weakening pound and the anticipated slow recovery in the global economy towards the end of the decade.

The retail market is predicted to see capital values drop by a further 25% to 30% as consumers reduce spending. The retail warehouse market is feeling the impact of the weakening economy, affected by the downturn in the housing market and the subsequent lack of spending on big ticket purchases.