Property investment volumes have fallen victim to the credit crunch, plummeting by 60% in the last quarter of 2007, according to new research by Jones Lang LaSalle.
Compared to quarter 4 2006, when £18.6bn of deals were done, in the last quarter of 2007 £5bn was transacted.
The fall in deals will mean that 2007’s commercial property transaction volume will be down 24% to £48bn, compared to £63.1bn in 2006.
Jones Lang LaSalle said that large lot size transactions, principally London offices and shopping centres, had been particularly hit.
Julian Stocks, head of capital markets England at JLL said: ‘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.’
Not all bad
The report was not entirely negative, suggesting several reasons why the market could improve in 2008 despite the continuing effects of the crunch.
It suggested that the price correction could tempt global investors back to the UK, as well as encouraging ‘bargain-hunter’ UK investors to buy when they call the bottom of the market. It also found that UK funds and REITs could re-enter the market as buyers after being net sellers for most of the first half of 2007.
Recent buyers may have to renegotiate post credit crunch finance terms. Short term funds will also see net outflows of cash, which could lead to a number of distressed sales coming to market in 2008.
Stocks said: ‘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.’