Commercial property could lose one third of value

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by Lin Freestone

Several leading analysts in the commercial property industry agree that, by the end of 2008, commercial property will have lost 30% of its value. Prices have dropped by an estimated 20% at this stage in the year, and an additional 10% fall is a not unrealistic prediction.

Offices and shopping centres that have tenants on short-term leases are particularly susceptible to a decline in value, as they cannot provide a guaranteed income stream for the property’s owner for the next few years.

Companies are taking advantage of the current state of the market. Rom Capital, founded in 2001 to specialise in the acquisition and active asset management of property companies and portfolios, has established a £400m vulture fund to take advantage of low property prices.

Last week it bought Broadwalk Retail Park in Walsall, from the CB Richard Ellis pension fund, for £22.5m. This was a saving of £6.5m, or 22.4% on its initial sale price.

It is predicted that the continuing slide in values will not pick up until the fourth quarter of next year.

Land Securities, the UK’s biggest listed property group, announced last week that it was wiping £1.3bn off its real estate portfolio. This represented an 8.8% fall to £13.6bn. The group revealed a pre-tax loss of £888.8m, against a pre-tax profit of nearly £2bn last year.