Commercial Property Market - What is it really like?

08/02/2008

Is there too much fiction and not enough truth being written about the current state of the commercial property market?

“Much has been written about falling values but this predominantly relates to investment property the sort which is mainly owned by pension funds, small property companies or some small investors.  The occupational market is holding up well” says Mark Bunting, Group Director at Aitchison Raffety.

“Against the background of a very heated market combined with low interest rates and the easy availability of money, prices for investment properties have been driven higher and higher and the traditional view of risk seems to have been ignored more and more.  Seasoned pundits have been predicting a messy end to this situation for some time and this now seems to have happened with the combination of increasing interest rates and the credit crunch arising from the sub-prime lending and Northern Rock debacles. “

Views of the level of value decline differ, with reported transactions reflecting a 20% reduction and auctions which indicate a reduction of under 10%.  However, there is no argument that the volumes of business have declined significantly, partly due to caution, partly due to vendors being reluctant to market property at lower values and partly due to the tightening of lending criteria by the banks.  “While there are certainly less buyers around for investments, there is also belief that the current reduced values represent a good buying period.  Positive signs are that interest rates are likely to decline the greater economy seems to be holding up fairly well and banks will gradually ease their lending criteria” says Bunting.

In terms of the occupational market (i.e. people taking premises to occupy rather than invest), there has been a slight downturn in demand but there is no evidence of prices or rents dropping.  The office market still has reasonable life although there is a slight slackening of demand meaning that slightly better incentives are obtainable such as rent free periods and there is no indication of prices dropping on freehold offices which still remain relatively few and far between.

The industrial market continues relatively unaffected albeit from a background of a fairly slow market in 2007.  Again, there is no evidence of any reduction in prices or rents although this is partly due to a relative shortage of available units.

The retail market, which was particularly hot in 2007, with premiums reappearing for the first time in several years and rents achieving record levels, is seeing a quieter period due to poorer trading figures after Christmas and subdued consumer spending as higher mortgage rates slowly work their way through.  Notwithstanding this, retail units are continuing to see reasonable demand although Aitchison Raffety does not anticipate seeing any great growth in rents this year.

“All in all, the occupational market is seeing a slightly quieter time but there is certainly no evidence of prices or rents having reduced.  This is a good time to be in the market if your business allows it as favourable terms can be negotiated” concludes Mark Bunting.

Anyone requiring further information on commercial property are invited to contact their local branch of Aitchison Raffety.