According to leading real estate advisers CB Richard Ellis (CBRE), the commercial property market finished on a welcome high in 2009, as investor confidence and overseas interest fuelled the nation’s sixth consecutive monthly gain. But small businesses may still be uneasy over the coming months.

 

Property capital values rose by 3.3% in the final month of the decade, forcing commercial sceptics to swallow their tongues following bleak predictions during the first half of the year.

 

Retail warehouses championed the increase, up 6.1% in capital during December, while central London offices, despite falling by 2.1% over the year, fought hard to bring a 3.7% gain before the final bell tolled on the noughties.

 

But 2009’s positive denouement will have surprised those keeping watch over the country’s rental yields, which fell by 8.9% in the last 12 months.

 

So, with yields declining and less money apparently harvestable from the commercial sector, why such a positive six-month run?

 

CBRE claims increasing demand from a number of parties has seen the commercial sector start to regain its balance after some shaky years. Strong demand from foreign investors, renewed flows of money into UK property funds and a limited availability of worthwhile properties have been highlighted by Peter Damesick, CBRE’s Head of UK Research.

 

“The sharply accelerating returns and value increases seen over the past few months inversely mirror the worst of the downturn seen this time last year,” said Mr Damesick. “Increased capital flows into property look likely in the near term, giving further momentum to the market in the early part of 2010.”

 

An upshot of property’s catastrophic fall from grace was that those sitting on worthwhile yet overpriced products were forced to shave off much needed financial fat.

 

In order to recoup anything from the crumbling economy, owners were forced to reduce their products’ values by up to 20%. This bumper sale pricked the ears of overseas investors and the nation once again became an investment prospect.

 

Australians, Germans, Lebanese, Ukrainians and more from further afield began to covet British commercial property once again.

 

Total commercial property purchases by foreign investors are thought to be close to 75% in the nation’s capital, up by almost 25% in a decade. And, with headline-grabbing deals seizing investor attention, such as the National Pension Service of Korea’s £772.5m purchase of the HSBC tower in Canary Wharf, the slap of business handshakes could soon be audible around the financial world.

 

But what of the small commercial businesses, unable to offer lucrative £100m offices and properties and struggling to rub pennies together at the end of 2009?

 

Well, the outlook is bleaker and less glamorous than the serene picture painted along London’s Southbank and Docklands. The Investment Management Association (IMA) found that the want to purchase among small retail investors has significantly dropped from 30% to 17%.

 

IMA’s survey of 3,451 UK-based investors highlighted that pressing concerns over the “volatile” nature of the country’s economy have forced many to reassess their plans for 2010. On average, for every two investors willing to take a punt there are nine more safeguarding their cash in the wings.

 

33% of over 65s are refusing to take investment risks while the less well-off are consistently more cautious, with 40% of those with household incomes below £25,000 saying they aren't prepared to accept any investment risk at all. In contrast this figure is only 1 in 6 of those with household incomes over £60,000.

 

"With the worst of the financial crisis over, and with a broad range of asset prices having recovered from their lows, investors are far more confident at the end of 2009 than they were a year ago,” claims IMA Chief Executive, Richard Saunders.

“However, the strength of the rally in the stock market since the March low and its recent pause for breath, as well as uncertainty about the prospects for the economy, have served to dampen expectations of further strong investment returns.  As a result, investors are looking more cautious about the coming six months."

 

The commercial property sector, like many others, will be charging into the year ahead with a mixture of trepidation and excitement circling within its bowels. While the future may hold contrasting fortunes depending on which portfolios investors are grasping, it is important to make sure that any difficulties, disputes or agreements are handled properly.

 

Commercial law solicitors will be keeping a watchful eye on the market’s unforeseeable fate over the coming months. Their involvement can be the difference between fortunes gained and lost and they will remain a key factor in success for those involved in commercial transactions.