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2008 opened very much a continuation of 2007’s trends in the UK commercial property investment markets. The ongoing shortage of debt led to rising yields and falling capital values across all sectors. The total investment volume transacted in the UK's commercial property market was around 60% down on 2007.

The second half of 2008 saw the beginnings of the economic downturn start to impact on the leasing markets across the UK. Leasing activity in most segments of the market was lower than the previous year, with the City of London office market being one of the hardest hit areas of the country. However, even in this market tenants were still active, in many cases capitalising on falling rents and more attractive incentive packages.

At a national level, retail and industrial rents were broadly stable over the course of 2008, and office rents showed a marginal fall on the previous year. Take-up levels were in line with long-term average levels.

The UK recession will undoubtedly impact on tenant demand, vacancies and rents in 2009. However, the shortage of debt available since the middle of 2007 is limiting the prospect of an oversupply of speculative development. Vacancy rates will rise in many locations this year, but we do not expect them to reach the levels seen in the last recession.

In the investment market we expect that 2009 will see prime yields stabilising. The low cost of debt finance, weakness of sterling and higher than average yields are beginning to stimulate investor interest in the UK commercial property market, particularly fromnon-domestic investors. While we do not expect a significant uplift in investment turnover this year, we anticipate that longer term secure income streams will attract increasingly strong investor interest as the year progresses.

Significantly reduced access to mortgage finance precipitated a dramatic downturn in the mainstream residential property market in 2008 causing the value of the average UK home to fall by 16%. In the Prime Central London market the annual fall was slightly higher at 18%, as City bonus demand which drove exceptional price growth in 2006 and 2007 largely dried up. The impact on turnover was also acute as the credit squeeze became a credit crisis, with the number of UK sales recorded by HMRC falling from1.6 million in 2007 to just 900,000 in 2008.

Price falls in the new homes sector were more pronounced than in the second hand markets as new build premiums were eradicated. This combined impact of reduced rates of sale and an absence of development finance translated into much larger falls in the underlying development land market of 50% in the year.

In the early part of the year the very top end of the Prime London market appeared to continue at pre-crisis levels, but this changed as the year progressed and in the last quarter falls in the ultra prime markets caught up with the rest of the market.

Looking forward, we expect another year of low transaction numbers in 2009, given ongoing mortgage constraints andweak buyer sentiment. However, demand from cash rich investors and up-sizers is likely to emerge as price falls work their way through the market. This will make residential investment property start to look especially attractive to foreign buyers benefiting from the weakness of sterling.Whilst owner occupier affordability has already been restored by the combined effect of price falls to date and the reduction in the cost of finance, a more widespread recovery will be dependent on much wider availability of mortgage finance and a more positive outlook for the economy.

2008 was the year that signalled the end of the strong yield compression that we saw over the last four years in Europe's commercial property markets. The economic and financial turmoil that followed the credit crisis in the US limited debt market liquidity restricting leveraged investors, who were the driving force in the investment market. The drop in investment demand for commercial property coupled with falling economic sentiment has led to falling capital values.

Yields softened across most of Europe's commercial property markets in 2008. Prime capital values dropped by around 20% on average across all commercial property sectors in 2008, with the Paris and Dublin office markets demonstrating the strongest yield correction.

Europe's economy has also weakened and this has dampened occupational demand. The shortage of debt has restricted construction activity, therefore slowing down the development cycle.

In the final quarter of 2008 we saw the first signs of falling rents in the office and warehousing markets of the countries that have been hardest hit by the current downturn. Rental growth still remains positive for prime retail properties. However the retail markets are exposed to declining consumer confidence and retail sales, caused by the fear of rising unemployment and falling housing markets. Therefore we expect retail rents to come under pressure in 2009, especially in markets with large development pipelines.

Following the deterioration of economic fundamentals in recent months and the forecasts of recession in the major European economies we expect occupier demand to weaken further. Rental growth should remain negative and more incentives are expected to be offered by landlords. These factors should cause some further decompression of yields.

Although investment volumes in real estate have dropped we do not anticipate property will lose its attractiveness as an asset class as it remains an attractive option for the long-term investors, offering the benefits of diversification and a stable income stream.

In 2009 we expect to see a rise in forced sales in many markets, which should create opportunities for equity driven investors to re-enter the market in a less competitive environment. We expect the main targets of investors in 2009 will be the more liquid and transparent markets, with their investment strategy focusing on secure income streams.

While the main theme of late 2007 in the Asian property markets was one of their immunity to the credit crunch, 2008 has clearly disproved any theories on decoupling. 2008 saw investment volumes down across Asia as shortages of debt inhibited many investors and developers, and non-domestic players refocused on their home markets.

In tune with the rest of the global economy, the second half of 2008 saw the beginnings of a significant slowdown in the very strong economic growth that had been seen in the region in recent years. Leasing and sales volumes were down on the previous year in most markets, especially those most directly exposed to demand from the international banking and finance communities. Despite falling take-up and residential transaction levels, some areas continued to see relatively low vacancy rates and this delivered rental and pricing stability in those markets.

Property markets generally follow stockmarkets and in this respect the current volatility in global indices does not bode well for the sector. Fresh concerns over the state of the banking sector coupled with growing signs that dramatically slower export growth around the region is affecting employment and incomes together mean that property values can be expected to continue to slide through the first half of 2009. Elevated supply levels will exaggerate these falls in some markets. Although we have seen some evidence of end user activity, we do not expect funds to return to the market until late 2009 at the earliest.

The US investment sales market slowed dramatically in 2008, particularly during the second half of the year. 2008 marked the end of a long bull market that was fuelled by an abundance of low cost debt financing, lax underwriting standards and strong economic growth. During the second half of 2008, the credit markets became largely frozen and rapidly eroding fundamentals led many qualified buyers to sit on the sidelines, even if they had equity.

As a result, there was an 87% decrease in total US investment sales volume between Q1 2007 and Q4 2008, with only $17.9bn of sales in Q4 2008. During the same time period, Manhattan sales volume decreased 93%, to $1.2bn.

In 2009, the erosion of underlying market fundamentals is expected to continue, and pricing is anticipated to fall further before bottoming out. Buyers will continue to be extremely cautious until they believe market conditions have begun to stabilise. The US government's Troubled Asset Relief Program (TARP) and the additional stimuli put in place by the government may encourage banks to make more loans to qualified buyers. The stimulus programmes implemented by the US government will hopefully begin to take effect, encouraging both foreign and domestic buyers to pursue assets more aggressively as fundamentals stabilise and they view pricing as attractive.