Insolvencies of commercial property companies on surge

Posted under Advice by Alan

There are 304 property companies facing financial crisis and many of them are on the verge of insolvency.

The figures given by Begbies Traynor’s early warning system, ‘Red Flag’, indicate sharp rise in number of companies in critical condition from 185 in 3rd quarter to 221 in 4th quarter of 2008.

These companies are lower and middle market players, with asset value totalling to £1.1 billion and averaging to £3.6 million per company in distress.

According to company’s London partner, Nick Hood, commercial property sector is facing build up of problems, as tenants’ real economy in which they operate continues to unravel.

The only positive development has been the reduction in interest costs. But this offered no relief to landlords who were struggling with rising tenant defaults and finding extremely difficult to raise or preserve business funding.

In last 3 months, 171 property companies initiated insolvency proceedings, and the number is predicted to rise sharply during 2009 and 2010. Number of insolvencies could increase up to between 1,200 and 1,600 in 2009.

Hammerson, British Land and Land Securities are going to raise £2 billion through rights issues, while smaller companies like Workspace have been forced to raise new cash from markets.

According to CB Richard Ellis, commercial property prices fell by 3.5% in January, over and above 27% fall in 2008.