Morgan Stanley is warning that expectations of a 1% fall in capital values next year are too conservative and that a drop of 5.8% is far more likely.
In a note on the UK commercial property sector, the broker said consensus forecasts were too optimistic about when the UK commercial property market will start recovering.
It said the overall IPF consensus, comprising around 40 professional forecasters of the UK property market, expects a 1% fall in property values in 2009, compared to its own estimate of a 5.8% fall, and this may have to be cut further.
Analyst Martin Allen said: “A panel of the Real Estate Investment Trust association (REITa) expects the
“However, we are in good company. Michael Slade, chairman of Helical Bar group, a quoted property company that has consistently out-performed its peers over more than two decades in the quoted property sector, recently expressed the view that ‘we are braced for a second consecutive year of poor returns in the [UK] commercial property market’.”
Morgan Stanley said current estimates assume peak-to-trough falls in market rents on City and West End offices of 21% and 17% respectively, but its latest modelling is suggesting peak-to-trough falls of around 35% for both.
“Currently our projections assume that
“With the recent sharp increase in UK five-year swap rates to 6% and lending margins of around 120 basis points even at fairly modest loan-to-value ratios, it is now hard to see UK property yields peaking before they reach 7.2%.”
