End of woes of commercial property – A bleak prospect

As fresh reports are coming in, it is becoming more and more evident that the ongoing economic crisis will not end so easily. What’s more the way by which the financial crisis has engulfed countries (one after another) till now, it will take more time than expected to find out the best possible solution. The rate of speed of the global share market is failing to fulfill the aspirations of investors and consumers and the adverse effects of the crisis is being felt in other spheres of business too. One of the worst affected ones is the U.K. commercial property market.

It is coming to the fore (also stated by experts like Royal Institution of Chartered Surveyors or RICS) that this very market is going to suffer the brunt of the situation for a couple of years more. The mess has resulted into the reduction of jobs substantially and it is expected that values of offices along with stores and industrial properties may fall 25 percent by the end of 2010. The chief reason being the financial recession that is making the rental growth slow and property vacancies increase. This indicates toward the rapid deterioration of the market that would be almost 50 percent from the market’s boom in June 2007.

Now, according to the prudence of RICS, the present crisis is more severe than the erstwhile downturns and the decline will be more than the commercial property slumps in the 1970s and the 1990s. The worst affected sector will be the office buildings. The reduction of jobs in different sectors will add to the number of unoccupied spaces only.

Speaking on this, Oliver Gilmartin, senior economist at RICS said, “We are only halfway through the price correction in the commercial property market with values set to fall through 2009 and 2010 as rental declines gather pace.” “The rapid re-pricing across the market has pushed U.K. yields to among the highest in the developed world with a very wide gap emerging compared to finance costs,” he added.