By Jim Dow

THE pre-seminar lunch talk was all about doom and gloom, the unhappy state of the market and high golf handicaps − and when they trooped in to hear what the experts had to say, there was little change in the mood.

The event was the Atisreal economic forecast seminar, held in Edinburgh, and the head of research, Keith Steventon, predicted a further dip for the property market, having accurately predicted a double dip in January.

His forecast was that, having gone through property re-pricing and a second dip from the credit crunch, we are moving into a further dip caused by the Bank of England maintaining interest rates to combat inflation, and an economy that is sinking further.

Furthermore, he predicted that the economy will perform below trend growth until 2011, which means household expenditure will slow further, hitting the retail and logistics sector. Employment in the financial and business services is expected to fall a further 1.8 per cent this year and another 1.2 in 2009.

Steventon said that for the investment market, it means that yields will have to move out to reflect where the economy is going.

For the property sector, Atisreal's prediction was that from their average level of 6.2 per cent in 2007, they will move to 7.4pc by the end of 2008, and out to 8pc by the end of 2009 – a shift of 180 basis points in just two years. However, they are expected to move back in 2010.

The office sector would not see rental growth in some areas until 2012, with the City of London market likely to see the worst rental decline, falling 16pc this year.

The Scottish market will maintain rental growth this year, seeing a minor increase of 0.6pc. Rental growth will decline in 2009 by 1.5, with recovery likely to begin towards the end of 2010.

Steventon concluded: “It has been a tough market, but conditions are likely to get worse before they improve.

"However, these markets breed opportunities, and further falls

Cartmail: 'Rental levels better in Scotland'

Steventon: 'Conditions likely to get worse'

in values and rents are needed in order to get the market moving again.”

In making his forecasts, the head of the Edinburgh office, Andrew Cartmail, noticed that the banking community was well represented in the audience and he could not resist saying to them: “We can’t blame the whole economic situation on the banks, but you have to admit a little bit is down to you guys.”

He continued: “On the occupier side, rental levels are holding up better in Scotland than they are in some areas south of the Border. We currently have a better equilibrium between supply and demand and we are still seeing rental growth in headline office rents in Edinburgh which have increased to £30 per sq ft, while in Glasgow they are in the order of £27.50 per sq ft.”

In the retail sector, rents were not expected to fall in 2008 but this would change in 2009, when shoppers were likely to have felt the pinch of the credit crunch more, with a predicted 3.4pc fall in rental levels.

Shopping centres would see a gradual fall in rental growth this year of 0.7pc which would continue to fall in 2009, particularly in provincial towns and cities. The same could not be said for retail warehousing, where rents were expected to fall 5.7pc this year and a further 9.7pc in 2009.

The industrial sector in Scotland looked set to outperform other areas of the UK, with growth remaining positive up to 2012 with a minor increase this year of 0.4pc, and 0.3pc in 2009. Rental growth would accelerate in 2010 by 2pc, which would surpass the national industrial average of 1pc.

Cartmail continued: “Despite the forecasts, we are still seeing opportunities. There continues to be investment product available and there are potential purchasers, albeit at a price.

"There is also the possibility of adding value and bettering the market by good asset management by either a stealth-like rent review, a lease re-gear, some surreptitious planning advice, surrender and re-let, a refurbishment or some innovative dilapidations advice.

"There are lease restructuring opportunities out there, particularly with a widening yield gap between short and long-term income.”