Further pain in commercial property is yet to come: DTZ

Further pain in commercial property prices is yet to come, as property prices will continue to slide globally through this year and will only stabilise during 2010.
That is one of the key conclusions of real estate adviser DTZ’s Money into Property 2009 report.

According to DTZ, the prime London City office market is the only key office market globally to offer investors attractive returns at current values. DTZ’s global analysis has identified markets at different positions in relation to their fair value. Looking specifically at the prime office market, DTZ believes that although currently not at fair value, London West-End, Madrid, Paris and Sydney will reach fair value in 2009. Meanwhile Frankfurt, New York, Shanghai and Tokyo will not represent attractive investment destinations until 2010.

DTZ forecasts that globally, total office returns will be around -20% in 2009 and be zero or slightly positive next year, notching up to above 10% from 2011 onwards. While yields are beginning to stabilise in some of the markets, the softening of the economy will place rents under pressures across all markets covered by DTZ.

In the UK, prime rents in the City and West End of London have already fallen by 31% and 23% respectively since the peak, and further falls in the City of around 14%, and 20% in the West End, can be expected over the course of the next couple of years. Peak to trough, DTZ expects prime office rents in London to fall by 40%. With cumulative total returns forecasted to reach -46% in real terms in the period between 2008 and 2010, this period will be seen as producing the worst cumulative returns for UK property since records began in 1921.