The property slump is a global problem – and the worst is yet to come

When the global recession hit, commercial property unravelled along with most other assets. But the worst of the fallout is yet to come.

"The terrible performance of the Japanese equity market over the past 20 years is well known," says The Economist's Buttonwood column. "It is easy to forget that property prices have suffered almost as much." Japanese land prices are 58.5% below their 1991 peak and commercial property prices are 73% down from their highs. Does the same fate await property investors worldwide in this crash?

After losing heavily in the dotcom crash, many institutional investors moved money into commercial property, believing that it would diversify their portfolios and reduce their risk. For several years, this bet paid off handsomely. The strong global economy and cheap finance pushed up both rents and capital values. But when the global recession hit, commercial property unravelled along with most other assets.

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