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14 Jan, 2008


Published: 10:58 Monday 14 January 2008
By: Lorna Bourke, Money Columnist

The decline in the value of commercial property continued with a fall of 4.3% in December, according to property consultant CB Richard Ellis's monthly index.

The decline accelerated in December following a 4.1% drop in November. Values have gone down 11.9% since the onset of the credit crunch, and 10.3% in the fourth quarter alone.

Total returns in December were -3.9%, increasing the negative return for the whole year to -5.2%. The figures are significant because the Ellis index (CBRE) values a significant proportion of the properties in the Investment Property Databank index, the industry benchmark, which is used as the basis for property index derivatives trading and is next due for publication tomorrow.

Director Michael Keogh warned of further pain in the short term. 'The consensus and derivatives pricing is suggesting that there is a further 10% drop in capital values still to come. The risk to that is on the downside because it is unclear what will happen in the occupier market,' he said.

'The UK occupier market has so far held up well but could come under growing pressure as economic activity slows, retail sales flag, and job losses emerge, not least in London's City financial district.'

Keogh said the data indicated a difficult start to 2008 but the recent aggressiveness of the correction would help the market to stabilise towards the middle of the year as more bargain hunters were drawn to the market.

'Considering the remarkably quick adjustment in pricing, with values already down by almost 12% since mid-2007, and with the CBRE Index now showing an all-property equivalent yield of 6.4% against 10-year gilts offering less than 4.5%, it may not be long before more investors see value in the sector,' Keogh said.

       
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