Monday, December 8, 2008

Commercial property slump “dwarfs any other in recent memory”

Office space set to halve in value

The value of Britain's offices and factories will more than halve by the end of next year, making this an even worse commercial property crash than in the 1970s, surveyors have predicted. [Did they predict correctly before?] In the latest sign of the severity of the economic slump, the Royal Institution of Chartered Surveyors (RICS) warned that the scale of the commercial property slump now dwarfed any other in recent memory. The RICS said that the commercial property downturn will stretch into 2011 and will exceed the slump experienced in both the 1970 and 1990 recessions. Despite the slide in capital values and rents, commercial property yields in Britain are now among the highest in the developed world and are providing a magnet for foreign investors. [A magnet yet prices to fall more?]

Posted by drewster @ 01:07 AM (991 views)
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8 thoughts on “Commercial property slump “dwarfs any other in recent memory”

  • This is important because the commercial property market is ahead of the residential market. Commercial values are directly dependent on financing and rent (yield). There are no emotional factors involved, therefore it’s a purer market than residential. This means it moves faster and is more responsive to the economic situation. This matters also because banks have lent out billions in commercial mortgages. Gordon won’t be scrambling to offer mortgage holidays to small businesses. As commercial property values sink, the banks’ bad debt charges will rise, making them ever more risk-averse.

    This article is a bit ropey though. On the one hand they predict prices will fall a lot, on the other hand they think foreign investors will prop up prices. Which will it be? (My money’s on the former.)

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  • Key message:- “The scale of the slump adds to concern within the City, since banks have provided
    billions of pounds worth of loans to commercial property groups, which are now in growing risk of widespread default. As a result, any recovery in the investment market over the next two years looks highly unlikely, RICS concluded.”

    I remember the last commercial property crash of the 1990s. It was about a year before the major HPC of the time. Guess what happens next…

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  • Late last year, the commercial property arm of a certain bank was proposing a business deal with my company that involved buying A LOT of commercial property. I thought they were barking. Apparently, I was right.

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  • mark wadsworth says:

    Tee hee, on this basis “Real Estate Investment Trusts” (British Land, Land Securities etc) who had borrowings of more than 50% of gross assets at peak will be wiped out.

    Shares in Land Securities, for example, are down about 60% from their peak in Jan 2007, which uncoicidentally was exactly when REITS were introduced.

    They’ll be a good buying opportunity once the shares go negative.

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  • I started work in the commercial property market of 1992 and it was very grim…

    The wage they were offering for the big companies like DTZ was around £10k for the best graduates and some companies Knight Frank in Canterbury £4k and many said they would take us on for no money at all! The only way I got a job was by walking around the city with my CV and handing it personally to HR.

    It was over gearing and speculative devp that caused that crash. OF course nothing has changed except the more global nature of commercial property investment.

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  • This to me is not even remotely surprising.

    In fact what has surprised me in the past is just how much money a ‘tin’ shed costs.

    That also goes for shops and office space etc.

    It would honestly not surprise me to see commercial property prices fall by 80-90%. They IMO are vastly overpriced and hold back our economy as much as anything else.

    A small unit (say the size of a small house) ie big enough to house 4-6 employees on the first floor and storage/assembly space on the ground floor should not cost anymore than £50-£100k. Units such as these are the power house of this country and essential for small businesses to take their first steps in growth.

    Units as I’ve described currently cost £2-400k.

    Big falls can only be a good thing in the long run.

    As far as big commercial buildings go I guess the big blue chips have done their sums.

    This will be another reason for pension funds not to perform.

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  • maddison

    We were going through a similar thing in the last recession, my living has always been attached to Commercial Property Fit Out. Yes it was very grim back then.

    I see this time around being the same if not worse.

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  • I remember seeing signs all over the city for prime office let at £10 per sq foot negociable! that was just after banks had started moving to the Doclklands or were planning to. Many cancelled their planned move or stayed in the City instead.
    Commercial property availability of space is a good indicator of the state economy.

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