Capital chances for some.

Byline: Jon Tully

IT would be something of an understatement to say these are challenging times for those in the commercial property market.

A year ago most of us were just starting to get our heads around the meaning and implications of a "sub prime mortgage crisis and credit crunch". A year on, we find ourselves in the midst of possibly the most volatile financial and economic crisis in nearly a century, and I suspect there aren't many who could truthfully claim to have fully seen it coming to the extent that it has.

The effect of this financial crisis on the property market has been dramatic. The prices being paid for property investments have dropped significantly, as has the volume of transactions completing.

Neither the Government's recent attempts to jump-start the flow of money through the banking system, nor the dramatic cuts in the Bank of England base rate, has yet to have any real beneficial effect on lending conditions. The money to buy is therefore in very short supply.

Looking at the past few months the impact on property values has been acute. Worsening economic conditions have seen a slew of properties brought to the market by sellers needing to liquidise property assets and cash in, particularly larger underperforming investment funds.

When banks are still unlikely to lend without big risk margins worked into terms offered, the number of buyers willing and able to acquire is limited.

Those lucky enough to have funds are able to take advantage of sellers needing to raise money and negotiate prices down. It would be fair to say we are in a market of opportunity for those with cash.

This pattern is likely to continue until more buyers return to the market and the supply and demand dynamics are not so skewed in favour of buyers. The role that finance will play in any reshaping of the market will naturally be crucial.

While buyers are right to have concerns over how the recession will affect the occupational market, a recapitalised UK banking system and a greater flow of money across the world's financial markets will be decisive. Once commercial mortgages become more accessible there will be an increase in demand for property and a bounce in the market.

In the face of such a volatile stock market, property remains an attractive choice for investors.

They just need to be able to borrow to buy it.

Jon Tully, investment associate, storeys:ssp