Leading industry figures warned this week that 2009 would be a painful year for the
Rupert Clarke, chief executive of fund manager Hermes, said that the lack of new bank lending and attempts by banks to recover £250bn of existing debt would be the main drivers behind further falls in capital values.
Writing in EG this week, he said: “The potential impact of any return of institutional money, which has yet to materialise, and sovereign wealth investors will be minuscule in comparison and, other than on very distressed sales, these investors are likely to stand in the wings until the prospects for a stabilisation in debt finance and prices have improved significantly.”
He added: “While a projected cumulative fall [in capital values] of between 55% and 60% from peak seems potentially overdone, there are some good reasons for the market to fall further.”
Duncan Owen, chief executive of Invista Real Estate Investment Management, predicted that some of the big REITs would need to recapitalise this year to avoid breaching loan-to-value covenants, and said that he expected to see some property companies go bust.
“Unemployment will increase by a million people and vacancies across property portfolios will double in all sectors,” he said. “At the moment, voids stand at around 6-7%, but by the end of 2009 they will be around 12-13%.”
However, commentators said that they still believed that the current turmoil would create opportunities for cash investors. “From these depths, the eventual returns for early cash investors and owner-occupiers could be spectacular,” said King Sturge research partner Dr Angus McIntosh.
“As debt finance slowly returns, occupiers may find it is cheaper to take mortgage finance at 6-8% than to lease property.”
