Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Reverse REPO Market Brewing Financial Crisis Black Swan Danger - 29th Jul 21
Next Time You See "4 Times as Many Stock Market Bulls as There Are Bears," Remember This - 29th Jul 21
USDX: More Sideways Trading Ahead? - 29th Jul 21
WEALTH INEQUALITY WASN'T BY HAPPENSTANCE! - 29th Jul 21
Waiting On Silver - 29th Jul 21
Showdown: Paper vs. Physical Markets - 29th Jul 21
New set of Priorities needed for Unstoppable Global Warming - 29th Jul 21
The US Dollar is the Driver of the Gold & Silver Sectors - 28th Jul 21
Fed: Murderer of Markets and the Middle Class - 28th Jul 21
Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One? - 28th Jul 21
I Guess The Stock Market Does Not Fear Covid - So Should You? - 28th Jul 21
Eight Do’s and Don’ts For Options Traders - 28th Jul 21
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Commercial Property Crash of 2009

Housing-Market / UK Housing Jan 29, 2009 - 08:04 AM GMT

By: MoneyWeek

Housing-Market

Best Financial Markets Analysis ArticleDon't be fooled - commercial property is no bargain - They're an upbeat bunch in Southampton , it seems. The BBC took a trip down the local high street yesterday to ask shopkeepers in the town: "are you more or less optimistic about your business than 12 months ago?"

And the answer? Three-quarters of the panel were still "defiantly optimistic about business prospects for 2009".


So nothing to worry about then. All those scare stories about retail ruination and commercial property panic must be completely overblown.

If only that were true...

Commercial property could fall by 25% this year

Despite what Southampton 's shopkeepers might be hoping, things are going to get much tougher for retailers. And that in turn, means that commercial property prices have much further to fall – as much as 25% this year, reckons credit agency Moody's. Here's why.

This month's CBI Distributive Trades survey (which takes views from retailers around the country – so it's a bit more representative than the Southampton poll) showed that retailers' expectations for February were at their weakest since records began in 1983.

And for this year as a whole, Capital Economics reckons consumer spending in Britain will fall 3.5% in real terms (adjusting for inflation). Then there'll be a further 2.5% drop in 2010. That would make this the worst and most prolonged downturn for more than 50 years.

So retailers are facing emptier tills. That's bad news for cashflow. And that means it's hard to pay the rent - most stores still have to shell out three months' rent in advance every quarter.

"For those retailers that were feeling the heat at the end of last year, December's quarter rent day was a big test", says Ben Cooper at Retail Week. "Finding the cash for March's quarter rent day (the 25th) is likely to be even more stressful".

"This year's going to be really dire for retailers", says John Laker at Ldm. "Most will have survived through Christmas but from February onwards it's going to hit the hardest."

Things are going to get much worse for landlords

Retailers having it tough isn't much of a surprise. But the knock-on effect means things are going to get much worse for landlords too.

Commercial landlords will have to take some huge hits. Some of their tenants simply won't be able to pay up. The flak's already started flying. Overall retail rents fell 0.5% in December, taking the annual 'growth' rate to -0.4%. That's the first fall below zero since October 1994.

Both shopping centre and retail warehouse rents declined year-on-year. For the latter, this was the worst result in the 20-year history of the Industrial Property Databank monthly index.

What's more, some shopping malls are having to cut service charges, further reducing their income.

And unfortunately for the landlords, retailing is just one problem. Their overall rent book is being squeezed hard across the board, with things looking particularly bad in the City, where a mix of job cuts and oversupply means rental falls are likely to accelerate. Hence Moody's forecast of a 25% fall in property values this year. To put that in perspective, that would mean that by the end of 2009, British commercial property values would be down 45% on their 2007 peak.

Needless to say, that's bad news for the big property companies. The banks don't want to lend them any more money, so they're being forced to sell assets. British Land and Land Securities are trying to raise £750m between them to pay down debt. Further, they must now pay rates on many of their properties that are empty for more than three months – and the recession has hardly started yet.

What this means for investing in property

That means you shouldn't be tempted to "take advantage" of the big yields apparently being offered by UK property stocks, like the 10% historic payout at Land Securities. Many of these companies are cash–strapped. Their dividends "aren't sustainable" and will be chopped, says Andrew Jackson at Standard Life. What's more, a raft of rights issues to shore up balance sheets is also on the cards.

So despite both sectors seriously undershooting the market over the last two years, for investors the message is very clear. Retail: don't touch – well you knew that anyway. And as for commercial property – there's still a long way to go before we're anywhere near bargain-hunting time.

By David Stevenson for Money Morning , the free daily investment email from MoneyWeek magazine .

© 2009 Copyright Money Week - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Money Week Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Louise
11 Feb 09, 07:48
a good time to look for a new premises?

Hi!

I just read your article. I am a business owner struggling to pay my rent. I am looking at other premises as a back up plan but am also writing to my landlord for a rent reduction. Do you think this decrease in value of commercial property and the fact that its better to have some rent than an empty property is a good bargaining tool? In terms of our existing rent and of other properties?

If it comes to it and we have to close, I'd rather downsize and shrink the business than close altogether.

Anyway, its the business rates that need to be reduced! Surely as value drops, so should the rateable value of a property. The council are rip-off merchants and inform us that, in the very unlikey event that out rates are too high, we're not entitled to a rebate and the new rate won't come into effect until 2010 - by which point we may have gone bust because of the rates in the first place!

Thanks

Lou


Harry
25 Mar 09, 09:44
Commercial property price trends

Hello,

I was just wonerding if anyone has an opinion of how commercial property is forecast to increase or decline in price in the uk over the next 10 years

I have tried without success to find any graphs to support this notion

Help!!

Harry


Post Comment

Only logged in users are allowed to post comments. Register/ Log in