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News - 19 January 2008
London's Shard of Glass - backers getting nervous.

Commercial Property market slumps further.

The downturn in the UK commercial property market in the last few months is far from showing any signs of abating and would appear to be accelerating.

New Star Asset Management has issued a surprise profits warning after it revealed that customers had withdrawn around £500m in assets from its flagship property fund as the UK commercial property sector continues to fade.

The National Grid, which owns about £500m of property, said it was abandoning plans to sell its portfolio because it could not find a bidder and a key financial backer for the proposed Shard of Glass skyscraper in London has pulled out of the deal.

Many economists are predicting that the property downturn could last throughout 2008 and some are forecasting a full-scale collapse on the scale of the early 1990s. The cause seems to rest with the credit crunch which has raised borrowing costs, plus over ambitious investment decisions on the back of the bull market since 2005 (see earlier story in knowledgebase)

Simon Rubinsohn, chief economist for the Royal Institution of Chartered Surveyors, said: "The value of commercial buildings dropped by more than 4% in December alone. Transaction activity in the sector has been hit hard as the credit tap has been turned off ... we expect prices in the sector to continue to retreat over the course of 2008."

Land Securities, the UK's largest commercial property firm, said it predicted a hard landing for the industry and has sharply reduced the office space it expects to let over the next two years.

AtisReal, a property consultant, predicts that rents in the City will fall by 5% this year and in again in 2009.


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