Since the credit crunch hit the UK, the commercial sector has been hit hard, with the value of property declining to 4.3 per cent in December, according to property consultant CB Richard Ellis’ monthly index.
This followed a 4.1 per cent drop in November.
The report added that there was a significant mark down, with a negative return for the year of minus 5.2 per cent for commercial properties.
Michael Keogh, director at CBRE, said that the data indicated that there would be a difficult start to 2008 but the recent aggressiveness of the correction would help stabilisation towards the middle of the year.
He commented: “The consensus and derivatives pricing suggests that there is a further 10 per cent drop in capital values still to come. The risk to that is on the downside because it is unclear what will happen in the occupier market.
“The UK occupier market has held up well so far, but could come under growing pressure as economic activity slows, retail sales flag, and job losses emerge, not least in London’s City financial district.
“Considering the quick adjustment in pricing, with values down by almost 12 per cent since mid-2007, and with the CBRE index now showing an all-property equivalent yield of 6.4 per cent against 10-year gilts offering less than 4.5 per cent, it may not be long before investors see value in the sector.”
John Ford, director at Mustard Commercial Finance, said: “It depends on the location of the property. I’ve not seen values fall by that much, but there is some caution due to the state of the market.”
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