As major property groups rush to raise new cash through large rights issues, the whole sector is seeing rapidly increasing pressure from falling asset values, potential tenant defaults and the lack of liquidity in the banking sector, warns Begbies Traynor.
The firm’s ‘early warning system’ has flagged up 304 property companies currently facing critical financial problems, many of them said to be at severe risk of insolvency.
This represents a big rise from 185 companies with critical problems in the third quarter of 2008 and 221 in the fourth quarter. The troubled companies are mainly middle and lower market players with total asset values in their last published accounts of £1.1bn, an average of £3.6m per distressed company.
Nick Hood, senior London partner at Begbies Traynor, said: “We’re seeing a build-up of problems in the commercial property sector, as the real economy in which their tenants operate continues to unravel. “The only upside has been the fall in interest costs. However, this offers little relief to landlords dealing with escalating tenant defaults and unprecedented difficulty in raising or preserving business funding.
“There has been a sharp rise in our caseload in the sector, as lenders are forced to take control of commercial property right across the UK or landlords seek protection from their creditors to allow them time to restructure.
In the past three months alone, 171 property companies have started insolvency proceedings, and we believe these numbers will rise sharply as we progress through 2009 and into 2010. We estimate that the number of insolvencies in this sector could reach between 1,200 and 1,600 in 2009.
”Last week CB Richard Ellis published figures on commercial property values, revealing that prices fell 3.5% in January and by 27% in 2008.
