Capital Economics believes that between the end of 2007 and the end of 2010 commercial property prices will fall by a total of 12% (or 18% in real terms).

Another possible scenario is property yields may rise by 4.5% over the period 2008-2010 taking yields to 9% despite the fact that rents may decrease by up to 3% per year. This means, claims Capital Economics, that nominal property prices could fall by a cumulative 50%, with the real falls close to 60%. But they doubt this will happen as historically 1973-1976 was the most dramatic correction on record, when real commercial property prices fell by 48%. Kelvin Davidson of Capital Economics believes this is a worst case scenario.

Davidson said: “The commercial property market may be overbought but it is not facing an abyss. With the worst will in the world it is difficult to see the market facing a correction as severe in the early 1990s, let alone the mid-1970s.”