Commercial property values could fall 25%

Predictions of a fall in UK property prices generally focus on the residential market but news that Aberdeen Asset Management is planning the launch a British property fund gives warning of difficult times ahead for the commercial market.

Those behind the new venture expect the UK commercial property market to “bottom-out” from the middle of 2008 and analysts are forecasting that UK shops, office and warehouses will lose 25% of their value between June 2007 and the end of 2008.

The announcement from Aberdeen Asset Management comes as one of UK’s largest commercial property fund managers, New Star, has been forced to write down its UK property unit trust by to £1.74 billion, bringing the total fall since August of this year to 17.8%.

Already, the values of some out-of-town retail developments have deceased by up to 20% and the trend is expected to continue if consumer spending weakens and slows rental growth.

Aberdeen expects to raise at least £100 million of equity for its British property fund by next spring and according to Glenn Newson, the firm’s managing director: “Our intention is to raise funds and provide property returns for investors. I think the market is likely to need until at least the second quarter to rebuild confidence.”

He goes on to say that: “Prices of commercial property began to fall in July as the rising cost of debt forced a number of leveraged private buyers out of the market. Deals ground to a halt after September as the credit squeeze forced sellers to pull deals.”

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