UK commercial property seen sinking in 2009 too

LONDON, Aug 4 (Reuters) - Commercial property values in the UK are set to continue tumbling in 2009 because corporate demand for space has barely begun to wilt, property fund managers, analysts, and derivative traders said on Monday.

Almost three-quarters of delegates polled electronically at an industry briefing forecast a negative performance by commercial property in 2009, where market values have sunk by a fifth in the last 12 months.

"There is no room for optimism about (property) returns until 2010 at the earliest," said Bill Hughes, managing director of insurer Legal & General's (LGEN.L) property funds business, in a presentation ahead of the survey.

Just over a fifth of poll respondents predicted total returns -- which combine rental income and capital growth -- of less than minus 10 percent in 2009.

Six out of 10 saw total returns below minus 5 percent in the second half of 2008.

Richard Gale of Aberdeen Asset Management (ADN.L) said it was difficult to be optimistic because the commercial property market had yet to establish a clearing price and because potential sellers were seen as forced sellers, encouraging buyers to seek additional discounts.

British commercial property has been hammered as the global credit crunch has forced debt-funded investors to the sidelines, with net new lending to commercial property investors down by a fifth in the second quarter compared with the same period in 2007, according to data from the Bank of England.

Buying and selling of commercial property shrank to 5.13 billion pounds ($10.09 billion) in the three months to end-June, the lowest quarterly total since the third quarter of 2001, benchmark figures from Property Data show.

Hughes said Britain's commercial property bear market, though one year-old, was still in its early stages because the leasing market had recently begun to deteriorate as the country's economy slowed.

He forecast a rise to 14-17 percent in vacancy rates in London's City financial district and in the more technology orientated office markets to the west of London.

He also cited in-house indicators which now assigned a 90 percent probability to an economic recession in the UK.

(Reporting by William Kemble-Diaz; Editing by Paul Bolding)

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