Down With Commercial Property

15th September 09 – Down with commercial property

One aspect of the credit crisis that has not been touched on so far is how commercial property has fared. In a word – badly.

The benchmark Investment Property Databank (IDP) Monthly Index peaked in July 2007. Since then, it has fallen by more than 35% and at a faster rate than in the previous property downturn in 1990/1991. For those largely conservative investors in this “safe as houses” sector things got worse. Many open-ended investment companies and unit trusts punters have been unable to withdraw money since funds could not sell underlying properties to raise cash to meet redemptions. Others, locked into closed funds, such as investment trusts, may be looking to take their money and depart the scene.

However, there are signs that the worst is over and the performance of property shares has often been a leading indicator of change. Since March 09, the FTSE Real Estate sector has gone up by more than 50% and property companies have started to raise funds to allow them back into developments and to take advantage of distressed sellers. And, there is one most important factor bringing the commercial property market back to life.

Foreign, often sovereign, funds have begun to weight up “trophy assets” in the UK and specifically London. Last week, China and Qatar invested in Canary Wharf and an Asian consortium is thought to be interested in bidding for British Land the second largest property company in the UK. Now, the National Pension Service of Korea (NPS) says it wants to invest in “landmark” London office and retail properties.

So, commercially speaking, what went down must come back up even if in the most unlikely of places. Who would have thought it – South Korea