New Report Predicts Difficult Decade For Commercial Real Estate

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30th October 2012 10:29 - Housing

New research, published by RSA (the UK’s largest commercial insurer) and the Centre for Economics and Business Research (CEBR), has revealed that the market for commercial real estate in the UK may not return to pre- economic crisis levels before 2023 – more than a decade in the future. The CRE industry has seen an enormous £13 billion fall in the value of outputs since 2007.

Commercial real estate construction levels closely follows UK GDP, and the report suggests that the industry has experienced a peak to trough decline of 42% - the majority of this fall coming between 2007 and 2011, when output fell by almost a third (32%); from £41 billion to £28 billion. The figure is expected to continue to fall in 2012, and is not expected to show positive growth until 2014, when a growth of less than 1% (0.3%) is predicted.

Though the drop has affected all of the UK, Scotland and the North West have been hit hardest – with output falling by 51% and 49% respectively. London and South East have fared slightly better, with drops of 16% and 24%.

The study also reveals that demand for new projects has fallen, and that the demand for retail space has dropped with vacancy rates on the increase – up from 7% in Q2 2007 to more than 10% in the same quarter of 2012. Similarly, rents in the office sector across the UK have fallen by 16%.

Paul Greensmith, RSA’s Director of Risk Managed Business, Global Specialty Lines had the following to say:

“High vacancy rates are set to become a huge issue for the commercial real estate and construction industries as recovery remains elusive, threatening profits and presenting new risks associated with empty sites and building."

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