UK - HSBC analysts have claimed the UK market has further to fall, despite recent speculation it had already bottomed out following significant investment in UK property equities by GIC, the Singapore sovereign wealth fund.

A research note by HSBC analysts John Fraser-Andrews and Nicolas Lyle said the UK commercial property market is heading for a price correction of up to 35% in 2008. Limited demand and oversupply will suppress yield and rental values, notably in London office, where rental values will fall 9% this year.

Forced sales by retail funds, against an economic downturn, will suppress returns into next year, according to the investment house.

The analysts issued their report at the same time as Dutch pension fund ABP cut its shareholding in Brixton, the UK industrial and logistics firm, to below 5%. This move comes just weeks after it upped its shareholding in Land Securities, a REIT focused on prime London office and retail.

Jeremy Handley, a director in the valuation advisory group at Jones Lang Lasalle, echoed HSBC's bearish sentiment. Commenting on Bank of England figures pegging outstanding debt to real estate at £193bn (€259bn) at the end of 2007, he said even a forecast return to fair value mid-year would not ease the current credit crisis.

"Fair value won't help unless it results in higher prices because banks won't have much security," he said.

He added that there was a "real possibility" of serious market impact with ownership shifts loans come up for refinancing.

"Banks are assessing the current position. The conversations are already going on. Margins are obviously less advantageous for borrowers," he said. "Lenders will want more security, which could mean more equity. The longer this [current situation] goes on, the more likely it is to happen. It will only get worse."

Meanwhile, UK government figures indicated there was a slight increase in infrastructure and private-sector office construction in 2007. Infrastructure orders increased 24% in 2007 compared with 2006, while private commercial orders increased 2%.

Large stocks of private commercial - rather than large transactions - are understood to have influenced the figure.

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