Rent in UK Commercial property expected to fall 6% next year

KUALA LUMPUR: Rental values in UK commercial property are expected to fall by at least 6% in all sectors in 2010, with continued declines anticipated in some sectors in 2011, according to Colliers International’s November CRE/EG Capital Investor Pricing survey released by Capital Economics on Nov 30.

The survey added that the continued declines in 2011 can be seen especially in sectors such as business parks (2.5%), shopping centers (1.2%) and industrial property (1.2%).

Elsewhere, the Bank of England reported another negative net property lending flow in October.

Data released by the Bank of England on Nov 30 showed that the net flow of commercial property lending in October stood at a loss of 1.4 billion pounds (RM7.8 billion).

“That outflow is consistent with the need for banks to lower their exposure to commercial property from its current record highs -- a process that could plausibly run for another two to three years,” it said.

“It would be no surprise to see that repeated in the coming months, as lenders look to cut their commercial property exposure,” said Capital Economics.  

Survey respondents also expect average capital values to stabilise in 2010 (with falls in some sectors offset by rises elsewhere), implying that yields are expected to continue to fall next year.

“Consistent with all these, total returns around 7% are anticipated in 2010, double the figure from the previous survey,” the report said.

Some 38% of respondents noted that they had recently increased their tolerance towards risk-factors such as short leases and less-than-perfect tenant covenants.

“That simply adds to the case for expecting current momentum in the commercial property investment market to continue in the near-term. However, we continue to expect the current rebound to fade in the second half of next year.

"For a start, we share the view that rental values still have further to fall,” Capital Economics noted, adding that it remained sceptical that bank lending would return to normal levels any time soon.

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