UK commercial property predictions remain volatile
Expert commercial property predictions remain extremely mixed. It appears that the long-term effects of the credit crunch have left even the commercial property specialists confused.
Looking at current and past performance figures we can see that there is physical evidence that commercial property rents are continuing to decline across Europe, the Middle East and Africa (CB Richard Ellis’s latest research) and that the fallout from the recession is persistently affecting SMEs and large corporations alike. Even Tesco our biggest supermarket chain are reducing their spending on new properties in order to decrease their costs during the recession. However, this doesn’t quite tell the full story and in a similar pattern to Sainsbury’s and the other large grocers Tesco are still planning to expand their UK selling space by six to seven percent each year by developing their existing stores. Comparable to residential home owners who rather than looking to purchase larger properties are instead looking to make the most of the space they already have.
The declining rental values are visibly affecting UK commercial property values and the Royal Institute of Chartered Surveyors (RICS) believe that our commercial property market is only now halfway towards recovery and won’t recuperate for at least another two years. These predictions are in stark contrast to other industry experts who believe that 2009 will see the end to the current declines.
Confidence in commercial property investment does appear to be improving however with investors feeling far less pessimistic than at the end of 2008. This combined with the current weakness of the pound and the fall in commercial property values over the last twelve months mean that investor interest in London commercial property has increased significantly over the last month alone. Foreign investors are leading the way with many deciding now is the prime time to invest into UK commercial property.
Despite the increased interest investors are being warned that rents are still likely to continue to fall throughout 2009 as vacancy rates increase and the recession takes its toll. Tenants are continuing to enjoy the declining rents which simply didn’t occur at the same pace in previous commercial property recessions due to the fact that leases are now much shorter and more flexible with increased break clauses.
