Investors shun commercial property

When the sharemarket becomes very volatile as it has in the past month – plummeting then soaring – pundits would normally expect to see investors retreat to the safer haven of property.

Not this time. Commercial property is on the nose with investors, with prospective buyers holding back, according to independent property researcher, CPM Research

Managing director John Wakefield points out that clearance rates are at the lowest since 2004, with just 54% of 239 properties sold at auction in August. “Wee are seeing a quick response to the instability of the stockmarket and interest rate rise.”

He says investors in commercial property are usually sophisticated and rational purchasers who have no emotional connections to their buying decisions, which is why they have responded so quickly.

He says it could be that investors are putting their money into cash. “We expected that with the sharemarket volatility there would be a flight to property, which is a cautious approach. But this has not happened this time.”

Could it be that investors are looking below the surface of the GDP figures and feel that the sub-prime crisis could be heralding in desperate times?

“If they are moving their money into cash, that means investors are taking a very cautious approach,” he says.

Meanwhile, the commercial real estate prices in the US may fall by 15% over the next year as people hold off buying or selling and deals fall over. A report from industry consultants Real Capital Analytics shows that apartment building acquisitions were down 50% from June.