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Commercial property in free fall

Created:
1 May 2008
Written by:
Claer Barrett

UK commercial property has had its worst year on record, with total returns (rents plus asset values) of minus 9.7 per cent for the 12 months to 31 March 2008. Figures released today from property research bureau IPD show the worst annual decline in the history of its index, which dates back to 2001.

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Quarterly figures for January-March 2008 show a further decline in asset values of 4.6 per cent. While this is the third quarterly drop in a row, it is less than half the 7.5 per cent drop seen in the final quarter of 2007 - which was the steepest quarterly fall on record.

Total property returns for the first quarter of 2008 were down 3.3 per cent, reflecting a small increase in rental values. However, there are growing fears that commercial rents will be the next to suffer, triggering a 'double dip' in values.

"The continuation of occupier demand is contingent upon the next stage in the emergence of the wider economic response to ongoing financial uncertainty," said Dr Ian Cullen, co-founding director of the IPD. Which broadly means that if City firms fire workers, offices will sit empty.

The IPD also released figures charting the total return of property equities against the the FTSE All-Share. Unsurprisingly, real estate shares slumped by 33.3 per cent in the 12 months to 31 March 2008, compared with a slump of 7.7 per cent from the FTSE All-Share index.

That said, in the first quarter of 2008, property equities returned to growth, showing modest returns of 1.8 per cent, against a 9.9 per cent decline in the All-Share.

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