Commercial property prices in the United Kingdom fell nearly 20 per cent in the year to June 30 while Spain also expects drop in house prices after the country reported 34 per cent annual drop in sales for the fourth consecutive month. UK commercial-property investors suffered their worst returns in at least 30 years, said Jones Lang LaSalle, the world's second-largest realtor.
Investors lost an average 15 per cent in the 12 months through the end of June after taking into account rental income, Jones Lang said in an e-mailed statement yesterday. That was the worst annualised performance since the index began in 1978.
The decline in prices has been led by what brokers call secondary properties, older or lower-quality buildings, or those in less desirable locations, which have become more expensive to finance as banks raise interest rates and demand more equity investment. Prices of secondary shops, offices and warehouses fell more than twice as much in the second quarter as prime assets.
"We anticipate the gap between prime and secondary stocks to continue to widen over the coming months, particularly given the risks amplified by a slowing economy," Jeremy Handley, a London- based director of valuations at Jones Lang, said. UK pension funds and life assurance companies are selling commercial real estate at the highest rate since 2000, brokerage Lambert Smith Hampton said in a separate e-mailed statement today. They sold almost £6 billion (Dh43.6bn) of property assets in the first half and bought nearly £1.5bn, said the brokerage.
"This is the most significant sell-off of UK property that we have seen from the institutions since the start of the decade,'' Ezra Nahome, head of national investment at Lambert Smith, said in the statement.
The value of transactions in the second quarter fell more than 60 per cent to £6.1bn, the least since the first quarter of 2002.
"There continues to be a large number of small transactions but the big ticket deals have become scarce," wrote Nahome.
In Spain, official figures showed yesterday that the house sales plunged 34 per cent year-on-year in May as mortgage borrowing slumped 40.4 per cent from a year earlier.
"Spain had one of the euro zone's fastest growing real estate markets this decade and is being hit harder than any other large euro zone economy by eight-year-high mortgage interest rates and global credit restrictions.
Monday's figures added weight to chances of a significant correction in house prices in coming months, after they rose two per cent in the second quarter, analysts said.
Ben May at Capital Economics in London forecast prices would fall 15 per cent from their peak to the end of 2010. "There is good reason to believe you could see sharper falls than that. Twenty, 25, even 30 per cent falls are certainly not out of the question," May said.
Asking prices in estate agents' windows are a lot lower than a few months ago, and it will take time for official figures to reflect the speed at which the market is cooling, he added.
Depressing Spain's real estate market are up to 1.5 million unsold new homes after overbuilding fuelled by cheap credit and the second fastest growing population of any euro zone member, bar Ireland.
Spain's largest property developer Martinsa Fadesa has filed for administration and other large Spanish real estate firms are struggling to refinance heavy debt loads.
The Bank of Spain sees the real estate market stabilising in the medium term once property supply and demand balance out.