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Home > Investments > Property

By Marc Shoffman | Published Oct 21, 2010

Gloomy outlook for the commercial property sector

A survey by Real Estate Investment Trust panel, run by the British Property Federation, found that more than 90 per cent believed cuts would increase the divide between those who can afford to invest and develop property, and those who cannot.

What impact do you expect the public sector cuts to have on relative commercial property values in the north and south?

%

Significant widening of the divide     

23.5

Modest widening of the divide 

70.6

No material impact

0

Modest lessening of the divide  

5.9

Significant lessening of the divide 0

More than a fifth, 23.5 per cent, said that the gap would widen significantly, while 70.6 per cent predicted a modest widening.

Estimating property values, almost one in four, 23.5 per cent, predicted values would remain flat and 70.6 per cent predicted a fall.

Almost two thirds, 64.7 per cent, felt it would be at least another year before speculative development outside of London was feasible again, while 52.9 per cent said values in prime central London would rise a small amount, against 12 per cent who thought there would be a small fall.

On the question of banks reducing their exposure to commercial property, 70.6 per cent predicted "increasing use of imaginative arrangements to work out assets without recognising losses" with the remainder expecting a "trickle of assets coming on to the market as banks shy away from recognising losses".

Peter Cosmetatos, director of policy of the BPF, said: "Outside of the strength of central London there is real cause for concern that government spending cuts will contribute to either zero growth, or even a fall in commercial property values over the coming 12 months.

"While prime commercial property in London and the southeast looks fairly robust, the picture is very different in the north. Public spending cuts will result in further job losses and, in turn, less demand for commercial property, particularly for those industries that are almost entirely reliant on public sector spending.

"It is not a good time for speculative commercial development right now. Outside of London there just is not the appetite to build without a formal commitment from the end user."

David Brunning, director of Tunbridge Wells-based IFA Brunning Newman Houghton, said: "Real estate offers good long-term potential but its recent shocking performance has concerned a number of investors who are looking for security and volatility.

"There is certainly a risk of the north-south divide widening but it depends how far the government cuts go.

"A lot of civil service posts have been relocated to the north. There will be a drift there if there are severe salary and benefit pressures."

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