COMMERCIAL PROPERTY : At risk

Unlike other property busts, this downturn has not been driven by speculative overbuilding but by investors’ overenthusiasm. Commercial property was a popular asset class for much of this decade. Institutional investors who lost a lot of money when the dotcom bubble burst were persuaded that switching from the stockmarket into property would diversify their portfolios and reduce their risk. Cheap finance was plentiful. Investors could indulge in a version of the “carry trade”—borrowing at a low interest rate to buy buildings and counting on the rental yield and capital growth to more than cover their financing costs.

That strategy looked smart when rents and capital values were rising and vacancy rates were low. But as cheap financing has dried up and economies have tumbled into recession, investors have become badly exposed.

Are we going to follow the downturn of the Residential market ? Maybe its a déjà vu…