Commercial slump? (posted 4 Feb 08)
The UK commercial property market is about to go through a volatile period if recent reports are correct. Those close to the sector may even say that it has started to happen.
Rental growth has been diminishing for some time and now property values have started to fall. Capital values of UK commercial property fell more than 8.7% last year and total returns - combining rental income with capital growth - fell 7.6%. The news comes from industry benchmark IPD. Further losses are predicted for 2008.
IPD says that the collapse of investor confidence in commercial property funds bodes badly for the national economy in 2008 and that the fall is worse than that of 1990s. Agents argue that values could bottom out by half-way through the year but other observers, such as HSBC, say that the influence on the economy will be disproportionate to the size of the industry.
Just last week the Financial Services Authority warned that difficulties in the rental market could mean huge losses for banks that have lent out in a substantial way on commercial property.