Commercial property company insolvencies will increase this year, according to business restructuring specialist Begbies Traynor.

It said in its 'red flag early warning' report published today that 304 property companies were facing critical financial problems, many of which are 'at severe risk of an ultimate insolvency'.

This represents a 64% escalation from the 185 companies it identified with critical problems in the third quarter of 2008 and 221 in the fourth quarter of last year.

It said the latest troubled companies were not major groups, but companies with total asset values in their last published accounts of £1.1bn, equating to an average of £3.6m a company.

Increasing problems were a result of the whole commercial property sector experiencing rapidly increasing pressure from falling asset values, potential tenant defaults and the lack of liquidity in the banking sector, it said.

Nick Hood, senior London partner at Begbies Traynor, said: 'We’re seeing a build up of problems in the commercial property sector, as the real economy in which their tenants operate continues to unravel. The only upside has been the fall in interest costs; however this offers little relief to landlords dealing with escalating tenant defaults and unprecedented difficulty in raising or preserving business funding.

'In the past three months alone, 171 property companies have started insolvency proceedings, and we believe these numbers will rise sharply as we progress through 2009 and into 2010. We estimate that the number of insolvencies in this sector could reach between 1,200 and 1,600 in 2009.'

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