UK Commercial Property in Record-Breaking Slump

The escalation of the Eurozone crisis and yet more speculation into the future of the euro is forcing commercial United Kingdom (UK) property values down to levels that …

The escalation of the Eurozone crisis and yet more speculation into the future of the euro is forcing commercial United Kingdom (UK) property values down to levels that fall below the worst on record from Investment Property Databank, which has been tracking the industry since 1971.  Values of shops, warehouses and offices dropped 0.7% in the first quarter of 2012, which came on the tail of 2011 values already 31% below peak levels in 2007. The news comes with reports of the UK entering into a double-dip recession, which is expected to further depress values as people attempt to refinance loans for properties with negative equity. For more on this continue reading the following article from Property Wire.

UK commercial property is suffering its deepest downturn since records began as uncertainty surrounding the eurozone crisis pushed values down for the second consecutive quarter, it is claimed.

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.

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‘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.

This article was republished with permission from Property Wire.


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