Simon Wood: Prices slide as investors fight shy of commercial property - but it’s still a good long-term bet

Aug 15 2007 by Simon Wood, Liverpool Daily Post

THE last month has seen a rising tide of negative sentiment towards commercial property in the North West.

The summer months combined with the increased costs of borrowing and a widespread feeling that values in commercial real estate have, in a lot of cases, peaked have contributed to an over-correction of the investment market, with some properties now struggling to sell.

The negative yield gap between property and bonds of 0.6% is also making other investment media more popular.

The North West investment market does seem confused at the moment, but it appears the gap between prime and secondary is quite rightly re emerging.

The value of riskier properties, ie those in secondary locations or those let on short leases to weak tenants, are falling fast.

However, for prime property the fall has been more of a soft landing and there are a number of success stories in which this stock is still attracting huge amounts of interest and generating record yields.

Over the past few years a trend has emerged where we have seen the investment market steaming ahead of the occupational markets. We are now seeing a correction in the investment markets but occupational demand remains healthy.

This would therefore suggest that in the next market phase, unless there is a wider economic downturn in global economies, which would hit occupational demand and growth, property values will not disappear over a precipice, but will most probably hold at or close to current levelsand will remain a comparatively safe long-term bet.

* Simon Wood, director in the investment office at CB Richard Ellis