Top price deals spur property slump fears

FEARS are mounting that a slump is on the way in commercial property prices after a wave of big building sales by seasoned developers bagging massive profits.

Michael Marx, deputy executive chairman of Development Securities, the firm leading the construction of the Paddington Central office scheme, is warning of 'an asset pricing bubble' in the property investment market.

Last year was a record one for investment in the London office market with close to 300 deals worth more than £9.5bn, according to figures from agents Cushman & Wakefield, Healey & Baker.

Agents Lambert Smith Hampton recorded £42bn of commercial property sales for Britain as a whole.

But Marx's warning is the first negative comment from the head of a listed property company. It follows his firm's sell-off last year of nine properties for £33.8bn, a 15% net surplus over the figure the sites were last valued at in Development's books.

Marx said: 'Whenever you get this type of extreme movement, you think of a bubble. When you are at the top, noone can see a reason for going down.

'But prices always change direction and I am not as sanguine as others for a new paradigm. It will be more of a leak than a burst.'

Warnings of overpricing in the market have also come from veteran investor Gerald Ronson, whose Heron firm is considering a £480m-plus bid for housebuilder Crest Nicholson.

According to reports last weekend, Ronson, 65, is cautious about making future commercial property deals after experiencing two previous property crashes.

Commercial property investment returns - the money from increases in capital values and rental income - rose every month last year to reach an annual rate of 19% by the end of December. The industry benchmark, the IPD monthly index, was up from 11.3% a year earlier.

A flurry of deals concluded in the past week include Minerva's £135m sale to German investors of its 90 High Holborn site, home to lawyers Olswang, while Canary Wharf sold 15 Westferry Circus, one of Morgan Stanley's Docklands bases, to Irish investors for £134.75m, chalking up a £21.75m premium over the valuation put on the building only last June.

Clive Bull, head of London investment at Cushman, said: 'I am conscious that when there are price increases there tend to be corrections if the demand tap is turned off - but I can't see in the short term that will begin to happen. There is a wall of money out there.'