London feeling squeeze on office and house prices

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Conditions around the world are "challenging for the property industry" as the credit squeeze puts off investors and tenants, it said.

Chief executive Jeremy Helsby, who took over as chief executive from Aubrey Adams today, highlighted the plight of the London market, particularly in the City, where fears are growing that a glut of new offices due to open in the coming months will lie empty.

"Tenant demand has been fairly resilient across most sectors," said Helsby. "However, demand in the City of London office market has reduced significantly and retailer demand is subdued across the UK."

The value of commercial property has fallen sharply since the onset of the credit crunch last year and would-be buyers have found it difficult to raise funds. However, Helsby hinted the end might be in sight. "An increasing number of investors now perceive London as being at, or close to, fairly priced and we are seeing more buyers, both domestic and international, looking for prime investment opportunities," he said.

House prices in central London fell 1.5% in the first quarter of the year following a 2% fall at the end of 2007, he said. "The current uncertainty has led to a sharp fall in transactions for our residential business in London," he added. His comments came as the Bank of England's monetary policy committee kicked off its two-day meeting to set interest rates amid rising speculation it could make the first back-toback cut for nearly seven years.

It cut rates from 5.25% to 5% last month and economists think there is a good chance they will move to 4.75% tomorrow. The MPC deliberations began just hours after figures from the Nationwide building society showed consumer confidencehas fallen to its lowest in four years. Rising household bills and the weakening housing market mean people feel less confident than at any stage since the survey began in May 2004.

The numbers were the latest in a run of downbeat assessments of the economy, following on from grim news on the service sector yesterday. Rocketing oil prices are likely to dent sentiment further.