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Price Falls Predicted for UK Commercial Property

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United Kingdom  Ireland  real estate values  London  real estate prices  Retail Sector  IPD  retail assets  Capital Economics  BNP Paribas  Kelvin Davidson  Malcolm Hunt 

Price Falls Predicted for UK Commercial Property

By - Tuesday 20 December 2011

Figures published by IPD earlier this week revealed that, for the first time in over two years, a capital decline occurred in the UK's commercial property market during November. According to the firm's monthly index, real estate values fell marginally, driven by a poor performance in the retail sector. UK and Ireland client services director at the organisation Malcolm Hunt noted: "Deep uncertainty about the potential of the UK to avoid recession next year is now finding its way into property values."

Kelvin Davidson, property economist at Capital Economics, predicted there are likely to be further declines in commercial real estate prices over the coming 12 months. "In our view, the economy is going to shrink next year which will flow through to lower property rents," he stated. Mr Davidson added it is likely property yields will be put under "upward pressure" as a result of a dip in confidence among investors. He also suggested the London commercial property sector, which has so far proved buoyant in comparison to regional UK markets, may experience capital value falls.

The IPD data pointed out London continued to see real estate values climb during November. However, the report explained "this is now being outweighed by poor regional performance". Mr Davidson highlighted prime West End retail assets as one robust class, but anticipates other areas of the property sector will not fare as well. "Outside of the capital a lot of markets haven't recovered in the first place, so the recovery that we have seen in the property index in the last 18 to 21 months hasn't been widespread," he commented.

Research published by BNP Paribas Real Estate focusing on the west European commercial property investment market in the nine months from January to September this year noted the UK remained the top performer in terms of the volume of transactions. However, the organisation recorded a slowdown in the level of deals being concluded in the country compared with the same period in 2010.

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