A KBC Peel Hunt analyst note to be released this week warns that, with the cost of borrowing significantly higher than rental returns from commercial property, capital values could fall between 10% and 25%. The Sunday Telegraph
According to the Investment Property Databank, total returns on commercial property fell just over 1% in September, with capital values down 1.6%.
As capital values fall, many investors are banking on rental increases to make up the difference. Research from King Sturge shows that, despite the turmoil in the financial markets, rents – especially in the City of London – were still rising.
King Sturge predicts that prime office rents in western Europe were expected to end the year up by 10.8%.