The lack of investment activity in commercial property is set to continue after the latest figures showed values had fallen another 7.2 per cent in the eight weeks.
According to the latest Business Briefing: UK Property Investment Market report by Cushman & Wakefield, the sector continues to see rapid adjustments in price causing potential investors to hold back amid concerns over catching a falling knife and fluctuating views over what properties are worth.
The report also found average prime UK yields have increased to 6.49 per cent at mid-October, the highest since 1993, moving out by an average of 27 basis points (bp) in the four weeks to mid-October; equivalent to a 4.2 per cent fall in value. This followed a smaller 20 bp increase the previous month. Faced with shifting values investment trading fell further with volumes down 22 per cent on the previous quarter said Property Data.
The global agency said it believes prime yields will move out further but should be stable by June 2009 and may drop back as excessive market corrections are addressed. The firm forecasts secondary yields, however, will continue to rise further throughout 2009 as the weaker health of the occupational market exposes their relative lack of income security and sustainability.
David Hutchings, head of research EMEA, Cushman & Wakefield said: “We expect to see negative total returns across all properties of -20 per cent to the end of this year and -6 per cent for 2009. These could prove to be conservative estimates, however, with the market very much driven by sentiment. What we need is an increase in investment activity to reintroduce confidence and liquidity. The next few months will almost certainly see greater activity as debt-starved businesses and investors look to make sales but on their own these deals will not herald a return to normality.
“For that we need a fully functioning debt market but we don’t expect to see significant lending against commercial real estate until at least the latter part of 2009 and even then we only expect capacity to return to 2002/03 levels. This lack of debt will however throw up some excellent opportunities for cash rich investors.”