Double-dip possible, says Fitch
Some economic news for you to digest this Friday: Global ratings agency Fitch Ratings today says in a report on the UK commercial property sector that a “double dip” in capital values for UK commercial property is possible, as rents are still falling and as the recent growth in values has been supported by a large amount of investment capital chasing a limited amount of quality assets, rather than a material positive shift in long-term fundamentals. Fitch believes that any further capital falls will be limited to 5%-10%.
In a negative or low-growth rental market environment, REITs are now under pressure to drive shareholder value, either by re-starting capital-intensive development programmes or by diversifying into related but potentially untested areas of activity, Fitch says.
About £250bn of UK commercial property bank loan exposure is outstanding with domestic and foreign banks, the agency notes. The general trend towards bank de- leveraging could create a “funding gap” when maturities arise (a large increase in maturities will occur from 2011). Fitch expects the rated REITs to be able to attract enough finance, but this is likely to be at a materially increased cost. It does add, however, that there remains “considerable uncertainty” about the availability of debt capital to the UK property sector.
