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LONDON-According to CB Richard Ellis’ Global In-Sight UK Property Outlook presentation UK commercial property market continues to decline, with a few rays of light for a strengthening economy. The UK has seen a 35% drop in real estate value since the peak in 2007, with the sales volume going from $28.5 billion to $6.4 billion in Q4 2008.

Peter Damesick, head of research in UK for CBRE, who gave the In-Sight presentation, says the “decline was much faster and much deeper than the last decline in 1989.” At that time there was a 16% drop in values over 19 months, compared to the 35.5% recent drop. And the lowest point during the last recession never neared today’s drop.

The central London office market has declined during 2008. Availability grew to 18%, with more than 17 million square feet of space on the market. Likewise rental rates have fallen 18%. “The outlook for this year is going to be more of the same,” Damesick says.

The “one ray of light” he sees is the development peak in 2009 will add only 6.8 million square feet of new space to the market. After that, “development completions are going to subside and subside quiet completely,” Damesick says. “Schemes are put on indefinite hold, and new supply will dwindle over the next two or three years.”

Other major office markets are not prone to the severe cyclical swings that the central London market is. Damesick says he does not expect the other markets to follow suit.

The retail sector is not immune to the downturn either. “Retail has tended in the past to be a more resilient market than the central London office market, but there is concern that it will be hit,” Damesick says. Demand for product has slowed, the active pipeline of new shopping centers has declined and will stop almost entirely in the years ahead and margins have been heavily squeezed; all aiding the retail sectors downturn.

Additionally, “it is likely that we will see more retail failures in the coming months, which is going to push up vacancies,” Damesick says.

With that said, Damesick sees a couple points of silver lining. Investors have not written the UK off entirely. Rather, “investor demand will be quiet selective,” he says. Properties with long and secure income stream are the most attractive now. Assets with risk are unlikely to attract much attention without price adjustments.

Looking at five-year annual returns in a historical context, they have rebounded strong after trough years. As a result investors might see a small opening of opportunity. Damesick says that the market has long-term strength due to property investment during the last 15 years having outperformed equities.

Other high points include interest rates having hit an all time low and mortgage rates having also declined. Plus, the lower price of oil and the depreciation of silver, and the government’s recently approved $28.5 billion stimulus plan will aid the economy.

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