Capital values to fall harder than in seventies

Commercial property capital values will have fallen by at least 50% by the end of 2010, making this a worse downturn than those in the seventies and nineties.

The grim prediction is made in the RICS' latest commercial property forecast, which predicts capital values will decline by at least 16% next year.

A further drop of 10% predicted for 2010 will contribute to an overall decline of more than 50%, exceeding the fall in values of the seventies and early nineties.

The office sector will be the worst hit, with the decline in capital values from “peak to trough” expected to be around 60%. The retail market is expected to fare little better, though the report says the industrial market will fall by a comparatively small 15-20% before 2011.

The RICS expects average rents to fall 10% next year, with the office sector again the hardest hit. It predicts office rents will decline 16% in 2009, 11% in 2010 and 6% in 2011.

Oliver Gilmartin, RICS senior economist, said: “We are only halfway through the price correction in the commercial property market with values set to fall through 2009 and 2010 as rental declines gather pace. Transaction activity is set to rise, however, as more sellers become willing to accept lower bid prices.”