As the credit crunch reaches its first year anniversary, Ian Stringer, regional senior director at GVA Grimley, reviews the last 12 months and looks at what lies ahead for the property market.

Call me a bit 'long in the tooth' but experience and plain common sense leads me to believe that trends by their very nature will not continue irrevocably upwards.

Equally, against the background of relentless bad news, one might be forgiven for assuming that current trends will continue irrevocably downwards.

The fact is that property is a market commodity and despite efforts on the part of the Treasury and the Bank of England, markets work in cycles.

12 months ago the UK economy took a marked downward change of direction and we started to hear a set of new phrases.

Many cynically branded the terms ‘credit crunch’ and ‘sub-prime’ confusing and irrelevant, and rather ironically, often capped them off with ‘nothing to do with us in the UK anyway’. 

We have learnt quickly that it has everything to do with us, having witnessed a subsequent massive impact on the property sector.

This has been a stark reminder of the experience of the early 1990s.

Market reversals are often sharp and painful when sentiment translates into reality and the two start chasing each other in a downward spiral.

Factually, the initial impact has been largely restricted to the residential market and the commercial investment sectors.

The House Builders Association expects only 80,000 new homes will be built this year, in comparison to 180,000 in 2007; a prediction echoed by the House Builders Federation’s recent plans to make half of their staff redundant.

This slowdown has had a corresponding effect on residential land values which have fallen by up to 20% in the first half of the year.

In the investment sector, the volume of transactions has not been so low for such a prolonged period for a generation.

This is partly a result of a lack of finance, although banks continue to voice that they are open for business.

Current speculation is that quarterly valuations undertaken in September and subsequently assessed by IPD (Investment Property Database) will show falls in investment values in excess of 20%, and possibly as much as 25%, over the last 12 months.

For a good nine months of the ‘crunch period’, occupational markets have generally held up well with demand steady in most sectors.

The hotel sector remained buoyant with retail and leisure probably suffering more than most at this stage in the cycle.

Conversely, and somewhat ironically, Birmingham is likely to see the highest ever level of annual take-up in the offices sector in 2008, with major deals to Wragge & Co (215,000 sq ft), Barclays (98,000 sq ft) and Deutchse Bank (68,000 sq ft) already confirmed this year. 

Despite sector optimism about this record year, the offices and industrial sectors have recently noticed a discernible downward shift in occupational activity.

September is often a telling month in occupational markets when the industry can establish whether the quieter summer months are as a result of holidays, true lack of market activity or, as is most likely, a combination of the two factors.

With hindsight, I believe June 2008 will be identified as a turning point when businesses decided to pull in their horns, sit on their hands and do nothing about property decisions until they have to. 

It is an old adage that when it comes to incurring increased costs during difficult times, the easiest decision is to make is no decision at all.

Will all this mean a drop in rents?

Ultimately this will depend upon ongoing demand, which in turn is partly a reflection of economic activity within the UK.

I foresee rents holding up reasonably well.

Ultimately however, this will depend on whether we find ourselves in a prolonged period of low economic growth or whether the next 12 months see inflation falling, enabling a reduction in interest rates to reinvigorate the economy.

The next 6-12 months will undoubtedly provide opportunities for well financed investors to buy at prices not seen in a generation.

One man’s misfortune is another man’s opportunity and as always in investment, timing is everything. And time will certainly tell!

Ian Stringer FRICS
Regional senior director, GVA Grimley