Credit Suisse predicts gradual recovery for UK commercial market

Credit Suisse UK Real Estate has predicted an improvement in the commercial market in Britain in the second half of 2008, with 'falling interest rates, a relaxing of the credit crunch and the sustainable fundamentals of real estate' resulting in a turnaround. The company's latest real estate update notes the market's sharp decline, which it expects to continue for the first half of 2008. Returns have fallen 8.5% over the past three months and the report notes a number of capital raisings for 'vulture' funds hoping to capitalise on potential distressed sales from retail funds as well as private property companies.

While offices are projected to be the best-performing sector uncertainty in the financial market continues to pose a threat. Additional retail supply entering the market and competition with internet retail providers will contribute to keeping retail returns low. The REIT market, having seen an average drop of 38% last year, will be exposed to takeover activity, the report citing GIC's stake building in British Land through the purchase of a £130 mln stake. The end of 2008 however will likely see an increased allocation of real estate among the large Life funds due to its perceived long-term value.