UK commercial property values have fallen by 7.2% in the last eight weeks according to global real estate adviser Cushman & Wakefield. Figures in its latest Business Briefing: UK Property Investment Market also show that average prime UK yields have increased to 6.49% as at mid-October, the highest since 1993.
The report concludes that whilst the UK remains at the frontline of the global financial crisis it is continuing to see a rapid adjustment in pricing. Prime yields moved out by an average of 27 basis points (bp) in the four weeks to mid-October; equivalent to a 4.2% fall in value. This followed a smaller 20 bp increase the previous month. Faced with these shifting values investment trading fell still further with volumes down 22% on the previous quarter according to Property Data.
Cushman & Wakefield believes that prime yields will move out further but they should be largely stable by June 2009 and may in some cases drop back later as excessive market corrections are addressed. The firm forecasts that secondary yields, however, will continue to rise further throughout 2009 as the weaker health of the occupational market exposes their relative lack of income security and sustainability.
David Hutchings, head of research EMEA, Cushman & Wakefield said: "We expect to see a negative total returns across all properties of -20 per cent to the end of this year and -6 per cent for 2009. These could yet prove to be conservative estimates, however, with the market very much driven by sentiment. What we need is an increase in investment activity to reintroduce confidence and liquidity. The next few months will almost certainly see greater activity as debt-starved businesses and investors look to make sales but on their own these deals will not herald a return to normality. For that we need a fully functioning debt market but we don't expect to see significant lending against commercial real estate until at least the latter part of 2009 and even then we only expect capacity to return to 2002/03 levels. This lack of debt will however throw up some excellent opportunities for cash rich investors over the next 6-9 months."
Bryan Laxton, UK CEO of capital markets, Cushman & Wakefield said: "There is value to be seen in some areas of the market when taking a long term view as many of the sub-sectors are standing at more than 100 bps above their 15 year average yield and a larger number sub-sectors are standing at 200 bps above the long term risk free rate. Sentiment is however a stronger influence on yields at the moment than long term fundamentals."
Source: Cushman & Wakefield