Commercial property investment nosedives in UK

Investment in commercial property in the UK fell by €14 bn (£10.7bn) in the second half of last year, with funding for new developments almost entirely drying up, according to property consultants CB Richard Ellis.

The research found that the investment in UK commercial property fell by 9% in 2007 on the previous year, a statistic which hides a much larger fall following quick price rises in the first half of 2007. Overall investment in the year was £59bn (€77.2bn).

Nick Axford, head of research in Europe, the Middle East and Africa at CBRE, said that the change in sentiment from lenders and financial institutions meant that it was now virtually impossible to fund commercial development without tenants signed-up in advance. "Speculative development capital has now all but evaporated," he said.

He added it was now unlikely that the easy access to capital seen up until the middle of last years was now unlikely to be repeated, with a permanent return to a more normal commercial property market likely. "To expect us to go back to an environment we had in 2005-6 in the future is just unrealistic. It's now back to basics, back to a world where risk is priced in to property transactions."

Ray Torto, global chief economist for CBRE added: "I foyu didn't make money in the last five years you shouldn't be in the [commercial property] business. Now it's back to making money the old-fashioned way."

However, CBRE also cautioned against excessive gloom, and pointed to continuing growth in property investment in most European markets except the UK. Excluding the UK, property investment in Europe in 2007 was 15% higher than in 2006.

Axford added: "Some of the negative commentary is over-played."