Zero growth expected this year in commercial property market

Investors are being warned to expect 0% return from the commercial property market in Scotland this year.

An assessment carried out by consultants, Drivers Jonas, shows the market has reversed since January last year with supply outstripping demand. Just last year, there were 10 buyers for every one property on the market whereas there are now 10 sellers for every purchaser.

Together with the impact of the credit squeeze, this will make it extremely challenging for developers, funds and other investors to achieve positive returns this year.

Drivers Jonas has long since argued that 10 years of accelerated growth has ended confirming their earlier suspicions. Experts are warning that the market has reached its peak and is now headed in a downwards spiral that is set to continue over the next year or so.

Andrew Kubski of Drivers Jonas said anyone who is playing in the market currently will know there’s completely negative turnaround. The slowdown, caused by the US sub-prime mortgage crisis, has already triggered a significant fall in prices.

Anthony Duggan of Drivers Jonas said the sub-prime mortgage crisis slammed the brakes on the UK property market predicting a 0% total return for 2009 said Mr Duggan.

The prediction will be a concern to life companies which have recently been forced to impose restrictions on withdrawals from commercial property-linked life and pension funds.

Investors have been rushing to rescue their money as returns fell from double digit gains into negative at the end of 2007, causing liquidity problems. Last week, Axa became the latest company to impose a freeze as it reported a ‘significant increase’ in withdrawals. A 6-month ban on withdrawals has been imposed from its £2.1 billion portfolio.

This followed earlier moves by Scottish Widows and Aegon-owned Scottish Equitable, which introduced deferment periods of up to 6 and 12 months respectively.

However, the research from Drivers Jonas does provide some relief for investors as the firm anticipates that this year’s slowdown won’t reach the same crisis levels as the early 1990s, when the sector was heavily affected by recession.

Mr Duggan concluded that this is a very different market, demand is going to weaken but we expect rents to remain under control.

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