You know sentiment in the UK property sector is bleak when Hammerson's news that its net asset value per share had dropped 5.5 per cent since June helped trigger a 6 per cent rise in the shares yesterday.
There is plenty to be worried about. UK retail rents have historically correlated closely with economic growth (which should slow) while office rents have moved in parallel with lease lengths (which are falling). It could be years before rental rates start growing again. Prime London office rents face further pressure from planned new office space that could add 13 per cent to the existing stock by 2010. Commercial property values have been sliding since June, and many retail tenants face falling profits. Lenders, once willing to finance 80 to 90 per cent of a project, now cap loans at 70 per cent. Falling asset prices could mean companies breach loan-to-value covenants.
