THE first quarter of 2009 saw UK commercial property transaction yields reach their highest levels for a decade, reflecting continuing falling capital values, with foreign investors taking advantage of low prices and a weak £sterling.

The average yield on transactions in the first three months of this year rose by 97 basis points to reach 7.84%.

Ezra Nahome, head of capital markets at Lambert Smith Hampton, said: “The commercial property market is offering better value now than at any other time this decade.

“Trading levels are down significantly and yields have moved out across the board. The value of transactions in the first quarter of this year was down by almost 50% on the first-quarter 2008 figure, with £3.9bn of deals completed.”

Two transactions accounted for almost one third of the value of this quarter’s total; the £600m Dawnay Day portfolio sale and the £588m Meadowhall Shopping Centre transaction.

Ezra added: “Most of the major transactions at the moment have involved overseas investors who have had the added benefit of the devaluation in £sterling.

“The Central London office market has seen transaction yields rise by 178 basis points since mid-2008, which equates to about a 23% fall in values. On top of this, sterling has fallen in value by 20%, which means that overseas investors have been able to buy property for 60% of its mid-2008 value.”

This trend has been borne out by the figures, with overseas investors increasing their exposure to the UK market by just under £1bn.

Among the major-use sectors, offices has seen the sharpest slowdown in activity, with £1.2bn of property changing hands in the last quarter compared with £4.2bn this time last year.

Darron Barker, Head of LSH’s Newcastle office, said: “The ability to secure bank finance was the fuel that drove commercial properties success as an asset class recently, as we all know the lack of available debt finance is putting the brakes on the market.

“Some banks will lend, however they are very much focused on the security of income that one can only get through investing in prime properties.

“Banks have a strong desire to see properties that are fully occupied to tenants with a strong balance sheet, on leases with in excess of ten years left to run. If a lease can incorporate fixed rental uplifts at rent review, all the better.

“The upshot of this has spawned some superb deals for cash-rich investors who don’t mind getting their hands dirty with some asset management.

So, for an informed and seasoned investor with some property nous and ready cash, now could be the right time to dip your toe back in the water.”

“The office sector has also seen the largest shift in yields, with the latest transaction yield standing at 8.12%, an increase of 336 basis points from their low point in 2007.

In broad terms, this represents a 41% decline in values since the height of the office market.

“The most significant sellers in the market continue to be the UK institutions. So far this year they have sold £1.6bn of property and this has come on top of the £10.8bn of sales in the previous 15 months.

Over the same period they have made purchases totalling £4.3bn, resulting in net disposals of £8.2bn since the start of the credit crunch.

“With prices adjusting quickly, the market has become an interesting option at the moment.”

Ezra Nahome added: “There has been an improvement in sentiment in the market in the past few weeks as the latest round of adjustments have pushed prices to the point where investors are thinking hard about committing.

“There may be some further adjustments to come but the current opportunities may not be present themselves again for some time.”