The EPRA Europe Index posted its worst ever monthly performance over October. Within the Pan European property sector, falls were seen across the board with no sub-sector immune. Banks are now likely to be even less willing to lend to commercial property, notably in the UK, where banks that are over-exposed to the property market look to rebuild their capital structures. In addition, the depth of the global recession has been heightened by the cataclysmic events of recent weeks.As such, estimated bottom of the cycle asset values are being further revised down to take account of values where debt -financing remains largely out of the equation for commercial property transactions and where buyers are unlikely to commit capital until there is some sort of visibility as to the extent of the economic downturn.Even after marking down capital value estimates by a further 10% to the bottom of the cycle as a result of the recent events (implying peak to trough falls of as much as 40%), the quoted property sector is trading at significant discounts to that low point estimated asset value. The question thereafter remains how wide that discount is when the asset value is marked down at the level, or will the market by that stage be 'looking through' the cycle to the recovery stage?One key reason why investors may be 'looking through' the cycle to the recovery stage before the asset values have bottomed is the underlying key fundamental attraction of prime, well let commercial property - a visible long term income stream. Since the month end, the European and UK central banks finally caught up with the US Federal Reserve, cutting interest rates aggressively and these are likely to fall significantly further as central banks try to restore economic activity.So ultimately, this may well attract equity-rich investors back to the sector and that would be a good indication that the underlying prime market is reaching a bottom. In terms of timing, the increasing expectation of a deep recession means these potential buyers are likely to want to feel some sort of evidence as to the depth and length of the global recession before committing.
77.47p
