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UK commercial property market expected to provide ‘golden opportunity’ for investors

There could be a 'golden opportunity' for excellent risk-adjusted returns for property investors in selective areas, says the report by Cordea Savills, the international property fund manager.

It predicts that by the end of 2009 UK capital values will have fallen around 50% from their 2007 peak but this short term distress is creating a window of opportunity for investors to purchase high-quality commercial property, with secure income, at attractive prices.

For property investors with Euros or US dollars entering the market during this decline could offer even greater opportunities with a 20% retreat for Sterling giving a 70% peak to trough fall in capital values according to market indices.

It also points out that a two-tier market for commercial property is emerging in the UK. This is reflected by an increasing demand for prime property and continued malaise in the secondary market.

Some of the best investments are likely to be prime assets leased to high quality tenants such as government department or supermarkets for over 10 years until first break. These could realise around 7.5% per annum and are deemed low risk.

The report rejects the argument that the UK economy is set to experience a protracted period of turmoil, akin to Japan's lost decade and suggests that the timely introduction of substantial fiscal stimulus packages early in the crisis will be reflected in a swifter economic recovery than other European markets, which have been slower and less decisive in their response.

'The UK is one of Europe's core property markets, accounting for 29% of its investible market size. As well as its scale, it is highly transparent and offers an unparalleled quality of lease structure and income stream,' said George Tindley, Director of Investment at Cordea Savills.

'Recent short term changes in pricing can only help to increase the relative attractions of investing in this market over the medium to long term, particularly considering the deteriorating prospects of the Eurozone,' he added.

'There has been a noticeable change in sentiment towards property in recent weeks which has been caused by a number of factors, not least diminishing fears of systemic risk to the UK economy; the prospect of a return to GDP growth in early 2010; improved (although still limited) debt availability, and value having been arrived at for the prime end of the market.

This is a golden opportunity for investors to exploit the power of their equity by cherry-picking assets demonstrating strong covenants, established locations and long lease length at a discount to historic market levels,' he concluded.