Commercial market heading for 30% slump, warn property gurus

Mark Leftly@MLeftly
Sunday 23 October 2011 03:33

Commercial property will have lost nearly one-third of its value between the start of the credit crunch and the end of this year, leading industry figures have warned.

Robert Peto, chairman of agent DTZ UK, Robert Whitton, chairman of acquisitive asset manager Rom Capital, and Robin Priest, a real estate partner at corporate adviser Deloitte, all believe that commercial property will be worth 30 per cent less in December than it was last August.

Mr Priest said: "Prices are probably 20 per cent down already, so 30 per cent is the minimum. In fact, that would be a good result comparative to where the market is going."

Offices and shopping centres that have tenants on short-term leases are particularly susceptible to a decline in value, Mr Peto said. They cannot provide a guaranteed income stream for the property's owner for the next few years. He added that the "full extent of the market problems has not been mapped in" to current valuations.

Mr Whitton predicted that property valuations would not start to pick up until the fourth quarter of next year, saying: "I do subscribe to the view that things will get worse before they get better – that's a fall of at least another 10 per cent."

Rom Capital, the company Mr Whitton runs in partnership with chief executive Daren Burney, has established a £400m vulture fund to take advantage of low property prices in the current climate.

Mr Whitton revealed on Thursday that he had bought Broadwalk Retail Park in Walsall, in the West Midlands, from the CB Richard Ellis pension fund for £22.5m – a saving of £6.5m, or 22.4 per cent, on its initial sale price. He described the deal as "indicative of where the market has gone", adding: "We will see prices hit the floor and then stabilise."

The UK's biggest listed property group, Land Securities, announced on Wednesday that £1.3bn had been wiped off its real estate portfolio – an 8.8 per cent fall to £13.6bn. The news came as the group revealed annual results, with a pre-tax loss of £888.8m against a pre-tax profit of nearly £2bn last year.

Land Securities is in the middle of a break-up process, including the demerger of its London properties and retail real estate investment trusts. It is currently selling its outsourcing arm, Trillium, with a price tag of £1.5bn to £2bn. There are four shortlisted bidders, which are ex-pected to enter detailed offers later this month.

The sale has caused difficulties for a £900m private finance initiative project in Northern Ireland called Workplace 2010. Trillium and one of its potential suitors, the William Pears Group-owned Telereal, are the two remaining bidders for the scheme. The eventual winner will buy around 80 government properties and lease them back to the civil service.

Concern has been expressed that should William Pears buy Trillium, there would be a lack of competitive tension. As a result, advisers are intent on selecting a preferred bidder for Workplace 2010 before July, when the Trillium sale is expected to be concluded. However, a source said that the winner of the PFI project was unlikely to be announced until late this year.

All eyes this week will be on Land Securities' rival British Land. The group has a £15.9bn property portfolio, but this could be revalued when its 2007 results are announced on Tuesday.

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