The Downturn on the UK Commercial Property Market
Predictions of a fall in UK property prices generally focus on the residential market but more recently there is news that gives warning of difficult times ahead for the commercial market.
Reports suggest that the UK commercial property market may ‘bottom out’ from the middle of 2008 and many analysts are forecasting that UK shops, office space providers and warehouses will lose nearly 25% of their value between June 2007 and the end of year 2008. Already, the values of some out-of-town retail developments have deceased by up to 20% and the trend is expected to continue if consumer spending weakens and slows rental growth.
The commercial property industry began to fall in July 2007 as the rising cost of debt forced a number of private buyers out of the market. Deals were ground to a halt some time in September as the crisis in the credit crunch had forced sellers to pull deals. Saying this office space providers were the best selling and performing sector in January, after having been the worst in the previous two months as the downward momentum in Central London offices eased.
Three months ago the Investment Property Forum had predicted that there would be a 0.9% increase in the commercial and property market, saying this the total predicted so far today has now fallen to 2.6% this is set to fall by the end of the year 2008. Since the IPF launched the forecast in 1999, this is the first time since that there has been such a huge down fall.
The commercial property sector had been on a long term roll until recently when prices had risen by almost half. As a result of the slow growth in the commercial property markets, many businesses and firms have found that buying new properties has proved to be very difficult for them to purchase. As the demand for commercial property at this moment in time is at a moderate stage, purchasing a property is still just too expensive, especially for smaller firms that have to borrow money from banks. In this case larger firms are being able to purchase more developments as they have much more assets and can still afford to buy new developments despite the affects of the credit crunch. Larger businesses, which are well established in this industry, hold a lot of properties to their name and they can afford to purchase new properties under their belt, which means in turn an increase to their portfolios.
The commercial and property industry could rapidly be affected by this downfall; predicting that agents and brokers may lose up to 7.8% of its capital by the end of the year, also the prediction that rental growth is also expected to fall by at least 1.1% this year.