Navigating through the turmoil: the state of play in the UK market

There is 'an immense amount of uncertainty' surrounding the UK market, as bailouts, nationalisations and takeovers dominate the market, according to William Newsom, head of UK property finance at Savills in London.

Investment deals are down between 25% and 40% on levels last year, depending on the type and location of assets. UK deals in the first three quarters stood at £18bn - a drop of 60% on 2007. In the City of London, around £2.2 bn in deals took place in the first half (2008), just a third of the volume witnessed in 2007.

And the bad news doesn’t stop there, according to Matt Oakley, head of commercial research at Savills in London: 'The UK economy will dip into a technical recession later this year or early next year. Further financial market turmoil will impact on demand for both office and retail space whilst investment markets remain restrained by the lack of debt,' said Oakley.

From a lending perspective, we are now back to 1992 levels, argued Newsom: 'Capital values had fallen sharply, both then and now, with higher yields providing increased cashflow for debt service.' That's not to say that lenders have completely shut up shop: major lenders, such as UK bank Barclays, are still working with their active customers, whereas private banks such as HSBC are typically still prepared to lend to new customers, providing they bring a wider banking relatiosnhip, Newsom added.

For German lenders - who, for the most part, were not as burdened with existing portfolios of bad loans either time round - now represents a particularly good time to capture market share on profitable and sound terms, building high quality loan books in the process - as they did in 1992, Newsom said.

Still, there is a glimmer of hope in the market as some assets are proving remarkably resilient to the wider global downtun. In particular, the logistics sector is holding up particularly well, showing the highest total return over the past 30 years, at around 13%. 'It’s the least volatile sector and tenant demand remains stable, so it’s a good saftey play in troubled times,' said Oakley.