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Almost 2,000 UK commercial property companies face insolvency

Some 304 property companies are facing a severe risk of ultimate insolvency, according to business restructuring specialist Begbies Traynor. But over a thousand could end up insolvent, the company is warning.

This is an increase of 64% from its last report which identified 185 companies it believed were facing critical problems in the third quarter of 2008 and 221 in the fourth quarter of last year.

It said that although the latest troubled companies were not major groups, they were still companies with total asset values in their last published accounts of £1.1 billion, equating to an average of £3.6 million a company.

These increasing problems were a result of the whole commercial property sector experiencing rapidly increasing pressure from falling asset values, potential tenant defaults and the lack of liquidity in the banking sector, it said.

'We're seeing a build up of problems in the commercial property sector, as the real economy in which their tenants operate continues to unravel. The only upside has been the fall in interest costs. However, this offers little relief to landlords dealing with escalating tenant defaults and unprecedented difficulty in raising or preserving business funding,' said Nick Hood, senior partner at Begbies Traynor in London.

'In the past three months alone, 171 property companies have started insolvency proceedings, and we believe these numbers will rise sharply as we progress through 2009 and into 2010. We estimate that the number of insolvencies in this sector could reach between 1,200 and 1,600 in 2009,' he added.

Last week CB Richard Ellis published bleak figures on commercial property values, revealing that prices fell by a further 3.5% in January, on top of a 27% fall in 2008.