UK property investment down 24% on 2006 - JLL

Commercial property transaction volumes in the UK have reduced significantly across all sectors due to the ongoing credit crunch and poor market sentiment, according to new research by Jones Lang LaSalle. Large lot size transactions, principally central London offices and shopping centres, have been particularly hard hit.

In the first half of 2007, 29 deals exceeding £100 mln accounted for around £9.6 bn of activity in the UK, out of a total volume of £27.4 bn. Jones Lang LaSalle estimates for the fourth quarter of 2007 suggest that volumes will fall by over 60% from the previous quarter, to stand at approximately £5 bn, compared to £18.6 bn in the fourth quarter of 2006. This will bring the total for 2007 to around £48 bn, compared to £63.1 bn in 2006.

Julian Stocks, head of Capital Markets, England at Jones Lang LaSalle commented: 'There is more stock on the market now and transactions are happening across sectors but at a much slower rate. Valuations have not caught up with how quickly the market has changed so there is a gap between what investors are willing to pay and what vendors are prepared to accept. The scale of the write-down of December 2007 valuations should give a pointer to where property will be priced in 2008.'

Jones Lang LaSalle said it expects the credit crunch will continue to affect the market in 2008 as banks realise and book losses derived from US sub-prime linked financial assets.

However, certain market trends suggest an increase in turnover in the middle to later half of 2008. JLL forecast that the correction of UK prices will make the market more attractive in relative terms to non-UK and global investors. Consequently, investors who moved into Continental Europe in search of greater value may return.

JLL said that investors will attempt to buy when they perceive the bottom of the market has been reached. There is evidence that some buyers are already targeting certain sectors looking for bargains.

UK funds and REITs have been net sellers in the first half of 2007, cashing in at the top of the market. 'With prices falling to a level where they believe they can add value, they should re-enter the market,' JLL said. Some recent buyers into property may soon have to renegotiate post-credit crunch finance terms. Certain short term funds will also see net outflows of cash. This could result in a number of distressed sales coming to the market in 2008.

Julian Stocks concluded: 'Whilst it is difficult to put a number on 2008 volumes, we expect them to be considerably lower than the levels recorded in 2005 and 2006. The market should start functioning more normally again towards the middle of 2008 as pricing adjusts to a level to tempt buyers back and debt becomes more available again.'