How low can direct property go?

The direct commercial property market still has some way to fall, with pressure on rents and the ongoing liquidity lock-up causing concerns.

Investors are now beginning to price in tenancy risk and other factors that "disappeared to a degree" in the buoyant market. While this is a healthy development, it's likely to lead to a further reduction in property values, according to LandMark White chief executive Brad Piltz.

"All property still has to get marked down to an extent, with the greatest markdowns occurring on properties of lesser quality and in poorer locations," Piltz said.

He said the market to a degree had been "falsely held up" by Government stimulus and the acknowledgment by the banks that forced sales are unlikely to be fruitful.

"That's why the market hasn't fallen to the extent that it possibly will," Piltz said.

And while the Government's plan to support the property market could "to a degree" solve its credit problems, "it will not change the economic challenges coming ahead".

Lower rents and other factors will "flow through to negative figures in property", Piltz said.

Helen Swanson, Colliers commercial research manager, agreed that "2009 will be a tough year" for commercial property, particularly for secondary grade stock.

A re-emergence of sub-leasing in certain areas points to further pressure on rents, Swanson said. Perth currently has the lowest vacancy rate in Australia, while there are likely to be further increases in vacancies in the Sydney, Melbourne and Brisbane commercial property markets.

However, Swanson noted that "private investors were still entering the market and being relatively active".

Andrew Saunders, chief executive of Real Estate Capital Partners, also "would generally expect values to decline".

"The bottom line is prices will fall. But will they fall as dramatically as the [Australian real estate investment trust] market? No way," Saunders said.

"Will they fall by 10 per cent to 20 per cent ... more than likely. I think they already have."

Saunders placed a cap of 25 per cent on his forecast for valuation falls.

And while the listed property market has seen some revival in recent weeks, Piltz believes there won't be a significant turnaround in direct property until 2012.

"I think we're in for a long hard climb - we haven't hit the bottom of the true property cycle," Piltz said.