Rics predicts continuing commercial property price falls

The latest forecast from the Royal Institution of Chartered Surveyors (Rics) is for a fall in commercial property values of 25% over the next two years, due to a sharp drop in rents.

Rics estimates that there will be a 16% decline in capital values in 2009, followed by an additional fall of up to 10% in 2010. However, RICS predicts that the downturn should begin to reverse in 2011.

It is predicted that office space will be the hardest hit sector as demand will be affected by the rising job losses. The fall in consumer spending and declining house market will also affect the retail warehouse sector. The retail market is likely to see capital values drop by a further 25% to 30% as consumers increasingly tighten their belts.

A senior economic at Rics has warned that transaction activity is set to rise as more sellers become willing to accept lower bid prices.

However, Rics comments positively that the rapid re-pricing across the market has pushed UK yields to among the highest in the developed world, with a very wide gap emerging compared to finance costs. For unleveraged investors like pension funds, high yields provide good long term value especially for prime properties.

The falling property values could be beneficial for those looking for commercial mortgages as the cost of buying a property will be cheaper.