Property market hasn't collapsed because banks can't face the truth

[CHIMO]

Commercial property is the dog that didn't bark in this recession. There were widespread expectations of carnage in the market; although there were sharp falls in values earlier on, this has so far not materialised. Quite the contrary in London prime property, which shows every sign of blowing up into a new bubble. But it doesn't take the deductive powers of Sherlock Holmes to work out what is going on – and the banks, inevitably, hold the key to the mystery.

The first thing to say is that the boom in prime London real estate gives a misleading picture of the market as a whole, as does the strong recovery in the shares of big listed companies like British Land, Hammerson and Land Securities.

Activity in the capital is being driven by overseas buyers taking advantage of the weak pound and financing transactions with equity capital, not debt. It is being stoked by a shortage of supply, with an estimated £7bn of capital chasing half a billion's worth of desirable property for sale.

Larger, established operators such as the FTSE quoted companies have the benefit of diversified, high-quality portfolios and can make recourse to the stock market for capital, as they have done with a wave of rights issues earlier this year. The likes of cash-rich veteran entrepreneur Gerald Ronson, whose Heron Tower is rising defiantly against the City skyline, are also weathering the crisis. Lloyds recently sold the Silverburn shopping centre in Glasgow for £50m more than it expected after being landed with the mall following the default of the previous owner, but the window of opportunity to pull off similar transactions may slam shut.

http://www.guardian.co.uk/business/2009/nov/22/commercial-property-ruth-sunderland