End to the fall in commercial property values in sight?

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by Lin Freestone

Is the slump in the UK commercial property market drawing to a close? Optimists see a levelling off, the floor in the market having been reached.

Following the 17% fall in the Investment Property Databank which has occurred since last summer, in April 2008 prices fell by 0.7%. Some market professionals are gathering all the evidence and conclude that commercial property values may now have reached their lowest point.

There is a more optimistic feel in the market. After rising more than 1%, the average all-property yield is 5.9%, back near its long-term average.

Scottish Widows Investment Partnership’s investment director of UK equities, Christopher Bamberry, noted last week that fewer banks were forcing sales, which has helped prevent commercial property prices falling further.

A more pessimistic outlook is offered by the Royal Institution of Chartered Surveyors Global Commercial Property Survey, predicting that tenant demand will fall in the UK.

According to its latest study, 23% more surveyors expect commercial rents to fall than rise as a result of the credit crunch and liquidity restrictions in the market.

Its conclusion is that challenging conditions look set to continue for much of Western Europe as investment demand and tenant demand edge further into negative territory.

Across the world, the picture is no better and tenant demand for global property has turned negative for the first time in over four years.