UK commercial property sees worst downturn since records began
08-05-2012
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The values of shops, offices and warehouses fell 0.7% in the first quarter of 2012, following a 0.1% decline in the previous quarter were 31% below the last peak in September 2007, according to the latest data from Investment Property Databank (IPD).
The slump is twice as severe as during the previous recession of the late 1980s when values recovered to 15% below their pre-crash levels within five years and is the worst downturn since the UK's benchmark index began in 1971, the company said.
‘The UK has fallen back into technical recession largely due to a lack of business demand and a construction slump. As property values continue to decline, investors are unlikely to want to develop, which will lead to further pain,’ said IPD's director of research Malcolm Frodsham.
The UK fell into its second recession since the financial crisis at the start of 2012, hit by headwinds from the eurozone sovereign debt crisis, public spending cuts and high inflation which have curbed the country's efforts to boost economic output.
The only area where values are above 2007 levels is retail property in the West End district of London, where shoppers from emerging markets like Russia and China are spending money in the stores of Oxford Street and Bond Street. This has helped values rise by 4%.
Values in the next best sector of West End offices, the world’s second most expensive office market after Hong Kong, were 16% below the 2007 peak. The worst performing area was North West offices, which was 46% lower.
The gap between values for prime real estate and riskier secondary assets located outside the best locations or with less creditworthy tenants was at its widest since the early 1990s, IPD said, as investors remained unnerved by the wider economic uncertainty.
Depressed property values will also pile further pressure on those looking to refinance loans that are in negative equity as banks reel back lending to the real estate sector to meet stringent capital requirements, IPD said.
