According to Capital Economics UK Commercial Property Focus, it is plausible that commercial property total returns could hit 15% in 2010 due to the sharp rebound in investor sentiment and the sheer weight of equity poised to (re-) enter the market, however, it emphasises that it’s central forecast is for total returns to be about 6% in 2010.

It is basing this prediction on its analysis of historical information. In 2009, total returns as a whole is likely to be -7% but Capital Economics believes that total returns can jump very sharply in the first year of a recovery as they did in 1975 (from -16% in 1974 to +11%), an increase of +27%, and also in 1993 (from -2% in 1992 to +20%).

Most significantly, according to the report, is that there is scope for the emerging economic recovery to fade away from the middle of next year, perhaps on the back of a substantial fiscal tightening.

Capital Economics believes that any commercial mini-boom over the next year or so that is founded on sentiment and liquidity rather than on fundamental drivers such as solid tenant demand and rental value growth may simply result in the market overshooting and becoming expensive again. This would set the scene for a renewed bout of capital value falls in 2011.

The report said: ‘In other words, the stronger the rebound over the next 12-15 months the greater the scope for weak performance thereafter. If total returns do turn out to be 15% in 2010, our forecasts for the subsequent two to three years will almost certainly be revised down.’