UK property market recovery is a bleak prospect

Is there any hope of revival in the European commercial property market? Well, according to a recently completed Reuters survey, the deterioration in European commercial property capital values is likely to continue well into 2010. What does this indicate? This indicates that prices will find a bottom in 2009 after a two-year slide is bleak. What’s more, as stated by the report, the appalling economic downturns in the prominent European property markets of Britain, France, Germany and Spain will hit occupier demand and slash rents over the next two years and all these make prospects of a quick recovery lusterless.

Speaking on this Keith Steventon, head of research at Atisreal told Reuters, “I cannot see France, Germany or Spain returning to growth before 2011. Values may well bottom out in the second half of 2010, but the problem is going to be falls in rental values dragging down capital values.”

Let’s focus on prime markets then. Take for instance Britain. It must be taken into consideration that credit-fuelled property market has performed worse than others in Europe and the forecasters look forward to see the first signs of a resurgence later this year, even if confined to higher-end properties largely. According to forecasters, UK values may fall a total of 18 percent this year and 3 percent in 2010 which will divide prices from their mid-2007 pinnacle, while average rents are likely to drop by 11 percent in 2009 and 8 percent in 2010.

“The (UK) transactional market will actually see values bottom out in Q4 2009 … however, the market is currently characterized by a growing divergence between prime and secondary properties,” said Colliers CRE COLL> economist Kiran Raichura.

While prices for prime UK properties become stable as buyers look for assets with long leases and strong covenants, said Raichura, the general market recovery may be hindered since risky (secondary) assets continue to be shunned by investors.