Hundreds of millions of pounds have been pulled from commercial property investments and developments in the UK in the past few weeks, exacerbating already accelerating losses in real estate values across the country.
Autumn is traditionally the time when property activity picks up from the summer recess, but the struggling sector has slowed further as the funding market almost entirely closed for new transactions.
Investors hope that after the government bail-out of the banking sector, much needed liquidity will also trickle into commercial property, with some already pointing to improvements in the interbank lending rate.
But investors seeking finance for property deals have said that the few open doors have slammed shut recently following problems in some of the sector’s largest lenders, from Lehman Brothers and Hypo Real Estate to HBOS and Kaupthing.
The property industry has been built on cheap debt and high gearing levels, and analysts warn of a wounding period of deleveraging made worse by the billions of pounds of property and debt that banks need to sell.
Some analysts forecast a “double dip” property downturn six months ago as falling rents from struggling office and retail occupiers began to accentuate already dropping prices. This is now a reality.
According to CB Richard Ellis, the commercial real estate advisor, the capital decline in the third quarter more than doubled, rising from 3% in the second quarter to 6.7%.