PricewaterhouseCoopers has highlighted the growing distress in the UK property market caused by tenants that are suffering in the downturn.

It says in its UK Real Estate Insights report that was published today, while overseas buyers are returning to the UK that there are increasing concerns regarding tenants and their covenant strength.

The report says that pressure on tenants’ cashflow will force property companies in to ‘difficulty’.

However, it says that although the banks are starting to take more action with distressed property companies, this is resulting in only a small amount of insolvencies and fire sales.

In the firm’s UK Economic Outlook report, also published today, it predicts that UK GDP is projected to fall by just over 4% in 2009. It also predicts mild growth of around 0.5% in 2010 and the prospect of a relapse into recession early next year.

John Forbes, real estate industry leader, Europe, Middle East and Africa, PricewaterhouseCoopers, said: ‘Overseas buyers, predominantly from Germany and the Middle East, are starting to return to the UK market with an eye on properties with long leases and strong ‘covenant strength’ tenants. Home grown recovery funds are also starting to buy.

‘The prospect of unemployment continuing to rise is also of direct concern to the real estate industry.

'Fewer people occupying desks will add to the issue of grey space in offices as well as reducing their capacity to spend in the shops.’

Barry Gilbertson, partner said: ‘Our role, as an administrator or receiver, is to achieve the optimum return from the assets for the benefit of all creditors, and, in our view, that is more likely to be achieved by holding and working the properties rather than selling somewhere near the bottom of the sharpest and deepest property-based recession in recent memory.’