Property firm forecasts slow but sure recovery

Jan 9 2008 by Tony McDonough, Liverpool Daily Post

RESEARCH from commercial property firm King Sturge forecasts commercial property prices will continue to fall in the first quarter of this year, possibly by as much as 10%.

However, the report adds that a recovery is likely in the second quarter and that losses sustained by investors in the first half of the year should be made up in the second.

Other forecasts in the King Sturge study were:

* Having risen by over 100% since 1991, there is a 50:50 chance capital values will fall by over 20% from their peak in mid-2007.

* The introduction of the Uniform Business Rates tax on empty buildings is good news for investors. It will slow down new supply and inflate existing investment values. For developers, it is bad news, yet another risk to the creation of modern work space.

* Investment transaction levels will remain low through early 2008.

* “Recovery” Funds will continue to be set up, with quoted funds and smaller REITs particularly susceptible.

The report added: “The first quarter of 2008 will see a continued low level of investment transactions, with a gap remaining between December valuations and prices attainable in the market.

“Vendors under pressure to sell, such as the retail funds, have adopted strategies to lock investors in, avoiding fire sales, and buyers are only looking for bargains.

“As 2008 progresses, recovery in transaction levels will be gradual, but slow.”

Commercial property lawyer Phil Rees-Roberts, of Rees-Roberts Solicitors, Liverpool, agreed the market faced several months of uncertainty.

He said: “The US sub-prime and Northern Rock collapses last summer were heavy body blows to the softening market which was vulnerable as prices were unsustainably high. Many institutional funds will feel they acquired their investments at the wrong time.

“Those looking to offload parts of their portfolio as investors bail out quickly could destabilise the market, creating a false economy of price and supply.

“Yields are so tight that there is very little value in the market at the moment but a softening of interest rates supports the general economy and will hopefully feed demands for occupation.

“Much will depend on the sustainability and stability of existing rents, and investors are likely to play the waiting game.”

tonymcdonough@dailypost.co.uk