Low confidence surrounding the UK economy is affecting values in the commercial property sector.
The Q3 UK Quarterly Property Index from real estate analysts IPD showed that falling demand reduced capital growth to just 0.3%. The fall is being attributed to high inflation, austerity measures (including taxation), weak growth and low confidence in the UK’s ability to avoid a double-dip recession.
The Research Director, Malcolm Frodsham, reported that purchase activity remained 
strong, despite the copious supply of commercial property in London. “Buyers are not just high net worth individuals and international investors”, he noted. “Various UK funds have also been investing, chasing the now all important income return”. It has been observed over recent months that investment arms have become keen to fill the gap in residential and commercial property following the withdrawal of banks and traditional lending sources. However, retail difficulties continue to affect the value of business property in the UK. The regular falls in rent for shopping centres have eventually led to a decline in value for the first time since autumn 2009. As Frodsham observed:
“Rental falls for the segment, which have been ongoing for 12 consecutive quarters, now amount to 11.1%. Standard high street retail units outside of the South East, have now seen a cumulative fall in rents of -10.6%”.
Only supermarkets were reported as bucking this trend to increase in capital growth, “due to their a-cyclical tendencies in a period of falling consumer spending”. Capital growth of commercial property in Central London, which has remained strong in recent years, is declining.
This news comes as the Confederation of British Industry reported a severe dip in confidence over the last quarter, with retail the sector worst hit. UK company liquidations in the third quarter exceeded 4,000 to reach a two-year high. Hence, concerns are mounting that a double-dip recession may be forthcoming, which would bring ineluctable consequences for the commercial property market.
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