Property values to drop further before confidence returns

COMMERCIAL property values across Yorkshire and the Humber have fallen by 25% since the start of 2008, according to property consultants King Sturge.

Simon Cullimore, King Sturge valuation partner, said values were expected to fall further as would-be buyers continued to find it hard to access affordable finance.

Mr Cullimore said: “Buyers who can obtain finance are reflecting the increased cost of borrowing in their bids which is further driving commercial property prices down. Others are waiting as they are fearful of buying early in a market which they expect to fall further.”

But Mr Cullimore, who advises banks, developers and owner-occupiers on property values, said the last few months had seen renewed activity from buyers who want to snap up quality properties before an anticipated investor rush when the market bottoms out.
 
“These buyers’ view is that if a good prime property comes available, they will buy it, even knowing that values are likely to fall further, as they may not get a chance to buy a block of the same quality again and it will provide an income through the rent,” he said.

“There are also buyers who do not require finance and the current market, where there can still be decent returns, is looking attractive to them as interest rates continue to fall and equity markets remain depressed as these are hitting returns from bank deposits and shares.”

Mr Cullimore said there had been a “flight to quality”.

“Whereas two years ago virtually any commercial property was considered a good investment, key criteria such as location, quality of accommodation, the covenant provided by the tenant and the prospects of the property being let quickly if it becomes vacant, or easy to sell, are more crucial than ever before,” he said.

“Those banks which are lending are looking to loan only on the basis of these criteria and so this is what purchasers are seeking. The quality of the income stream from a property and its ability to service the debt is of paramount importance for banks which are less concerned about falling values if they are still receiving re-payments and interest.”

The economic landscape has resulted in a widening gap between investment yields on prime and secondary commercial property stock,” he said.

Property owners are also generally not selling unless they are forced to and Mr Cullimore believes confidence and liquidity will be keys to an upturn in the market.