UK commercial sector hit

All sections of the UK commercial property market are being hit hard by the economic downturn, according to the latest information.

The City of London's office market is suffering considerably with take-up in the first half of 2008 falling almost 35%, according to Jones Lang LaSalle. If this wasn't bad enough take-up in June plummeted 46% compared with the same month last year.

This has caused the vacancy rate to rise for the first time in five years and prime rents to fall. It is particularly worrying as there is four million to eight million square feet of office development due to be completed in the next two years.

A few miles away take-up has also fallen in London's West End, but by less. The drop in the first six months of this year was 9.5% with vacancy rates falling by 3.4%. Although take-up is expected to fall a further 10% by the end of the year as landlords take longer to get occupiers.

'We are predicting that occupier demand will weaken. We've already seen it weaken during the course of the last few months and that will hit rental levels. I think in the main London market we're expecting rental falls in 2008 and in 2009,' said Julian Stotts, Head of UK Capital Markets at Jones Lang LaSalle.

As far as the future is concerned he said he is generally optimistic. 'We are in a very different place to where we were perhaps in the early 1990s. We have a weight of capital looking to enter the real estate market. So I'm concerned, but optimistic for the medium-term.'

However construction is stopping and being put on hold and it might not bring more opportunities until 2010 or even 2012. 'It's quite difficult to tell at this stage when investment will kick start again, but once the debt availability and pricing comes down, I would see investors will then start to re-enter the market again,' he predicted.

He added that even China and India are struggling in the current climate. 'Perhaps one or two of the commodity-driven economies would be interesting opportunities right now. Overall, my view is that if you've got cash, that's not a bad thing to have at the moment,' he added.

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