First with Financial Comment from Arabia

Unprecedented UK property slump sounds big alarm bells

with one comment

Prime UK commercial property prices in the South-East have slumped by around 25 per cent in the past two quarters, with yields hardening from 4.5 to six per cent, an unprecedented shift in property values estimated at a one in 15,000 year probability!

It was sobering to attend a presentation by one of the UK’s top property consultants Strutt & Parker which has just opened in Dubai. In the first quarter this firm has apparently seen its own revenues tumble by more than half, rather better than the collapse in the UK commercial property market to just 25 per cent of turnover in Q1 2007.

Property crisis

The explanation is a familiar one: the impact of the sub-prime crisis on The City and the financial services sector.

Head of the Commercial Division Andy Martin asked the obvious question: did this make UK commercial property a buy?’ And gave the obvious answer: ‘Only if you think the impact of the crisis on occupancy will be zero!’

However, UK commercial property in the South East has been offering yields close to treasury bonds, so safe and secure has it been perceived to be by investors. So you have to wonder if there is also not a risk to this reputation from the current crisis.

Strutt & Parker introduced the well known economist Paul Omerod of Voltern Consulting who said his statisticians had crunched the numbers and found this to be a once in 15,000 year possibility.

Clearly that just has to be nonsense. The previous view of UK commercial property as ultra-safe was the error. How short are memories.

This correspondent remembers the early 1990s commercial property crash and how star investors like Paul Reichmann of Canary Wharf went from being the world’s fifth richest man to being a minus billionaire.

UK recession

But does such a one in 1,500 year event herald a UK recession? It would be very surprising indeed if it did not, and with the dependency of the UK economy on the financial sector, a very serious recession too.

Look at Strutt & Parker’s own revenue collapse in Q1, and that is a fine blue-chip firm with the best institutional clients. What is it like for the others? Will UK prime house prices hold up? Well what do you think?

Still Strutt & Parker’s expertise will be welcome in the UAE where the property market is maturing at considerable speed, and where the impact of the global financial crisis has so far been positive in the shape of even stronger negative real interest rates.


Written by Peter Cooper

April 26, 2008 at 8:48 am

Posted in UK House Prices

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  1. […] Dubai, the UK commercial property slump is a one in 15,000 year possibility and unprecedented. read more | digg […]

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