United Kingdom Real Estate Losses May Be Biggest in Over Two Decades

Investment Management put Condor House, a seven-story office building facing London’s St. Paul’s Cathedral, on the market for 130 million pounds ($256 million) six months ago. The building sold last month for about 117 million pounds, 10 percent below the asking price.Appraisal values fell at a record rate in November and commercial real estate derivatives contracts indicate owners of British offices, shopping malls and warehouses may suffer their biggest annual losses in more than a quarter century.

“The U.K. market is falling apart,” said Peter Hobbs, London-based head of research at RREEF Real Estate, a Deutsche Bank AG unit that manages about $100 billion. “There’s a risk that this cyclical downturn turns into something worse.”

Britain’s 700 billion-pound commercial property market will perform worse in 2008 than the rest of Europe, the U.S. and Asia, Hobbs said. The slide is accelerating as banks tighten lending standards across the globe after losses of more than $90 billion from U.S. mortgage investments. Jones Lang LaSalle Inc., the world’s second-largest commercial real estate broker, estimates transactions in the U.K. slumped 60 percent during the final quarter of 2007 to about 5 billion pounds.

Building owners may record losses of at least 11 percent in 2008, according to prices of derivatives contracts pegged to indexes compiled by London-based research firm Investment Property Databank Ltd.

The decline would be the largest since IPD introduced its annual total-return index in 1981, which combines data for rental incomes and changes to appraisal values. The benchmark index covers 200 billion pounds of investments and excludes debt, which can multiply property gains or losses.