The UK's commercial property market remains strong, even if the recent boom appears to be coming to an end.
According to new figures, the price of office space in the UK and London in particular is beginning to fall back from the heights that were hit earlier in the year. However, despite this, there remains plenty of strength in the market and it appears that the UK's commercial property industry will continue to lead the world throughout the second half of 2007.
During the first half of the year, London has seen some massive deals. From the £1.1 billion sale of HSBC's office space in Canary Wharf, to the rumoured £135 per square foot for offices in St James', the London market has been at the forefront of commercial property purchases in recent times.
However, Stephen Hester, the chief executive of British Land, has recently suggested that such huge financial deals could be coming to an end. And he is not alone. Many investors are becoming concerned by the quick rate at which commercial property prices and rents have risen in the past year, meaning they are now less keen to invest in commercial property.
The Economist explains that investors have "driven prices too high, too fast" and as such there could be a correction in the market on the horizon. Indeed, CB Richard Ellis has warned its clients to expect to see a fall in commercial property prices. And the current uncertainty in the global financial markets, led by the impact of the crash in the US sub-prime mortgage sector, means that there is now some uncertainty hanging over the future of the commercial property industry.
At present, the market is being driven by strong demand and it is this that most in the commercial property industry will be pinning their hopes on over the coming years as a way to ensure the sector can ride out some difficult conditions. In the ten years to 2005, the average lease length was slashed from 13 years to less than five years. While in the past, longer leases have insulated the commercial property sector from fluctuations in the economy, the shorter leases of today mean that there is no such buffer. However, as long as the demand remains strong the commercial property market should be able to tackle the tougher conditions head-on.