LONDON BRIEFINGOne of Bob Dylan's songs echoes gloomy sentiment about the real estate market, wriets Maggie Urry

TIM WHEELER, chief executive of Brixton, turned to Bob Dylan on Tuesday to help explain the outlook for the UK property market.

Wheeler said the opening lines of the US songwriter's All Along the Watchtower "seem to capture the beleaguered mindset of the UK commercial real estate market". The song, more famously recorded by Jimi Hendrix, says of land that none "know what any of it is worth".

In a further indication of the management's view of the property market gloom, the front cover of the interim report sent to shareholders showed a picture of the four horsemen of the apocalypse.

Brixton, which specialises in industrial property in west London and around Heathrow airport, reported a 17.8 per cent drop in net asset value per share over the first half of 2008 to 448p. It said its void rate had risen over the six months from 15.4 per cent to 18.7 per cent at the end of June, although this reflected the completion of developments which are not yet fully let, Wheeler said.

He said the group had no developments on the go at present, but it had sites it could develop when the market began to pick up.

The revaluation of the group's portfolio cut 10 per cent, or £245.3 million, from its value in the first half, to £2.22 billion following a 6.2 per cent drop in the second half of 2007. Wheeler said the portfolio value was irrelevant to the business as "we do not need to sell properties". Although rental income rose 13.5 per cent to £39.4 million, the net £219.9 million fall in the portfolio taken on the profit and loss account tipped Brixton into a £236.7 million loss before tax, compared to a £192.3 million profit in the comparable period. The share price reflected the mood of the outlook and fell 18½p or 7.5 per cent to 229¼p.

"They are being realistic about what lies ahead," said John Cahill, an analyst at KBC Peel Hunt.

Nevertheless, the group increased the interim dividend by 2.1 per cent to 4.9p, saying the business was basically secure.

Wheeler said it was right to "tell it like it is". He said the fundamental problem was how to assess property values when "there is no real depth of buyers and sellers". Referring to the lines in the Dylan song, "there must be some way out of here, said the joker to the thief," he said: "If the 'thieves' are the funded or equity-based opportunist buyers and the 'jokers' are the owners who won't sell, there is 'no way' out of this impasse - yet."

He thought that the sector could start to stabilise and recover if there was an increase in trading in secondary and tertiary properties. That would happen if banks that had lent to other property companies called in debts as falling values caused covenant breaches. He said another way of looking at Brixton's portfolio was that it would cost £1.3 billion to rebuild the group's properties and with the value of the land as well, replacing the whole portfolio would cost £2.7 billion.

That compared to Brixton's enterprise value of £1.5 billion. He said that gap "seems, at the least, to be curious". Brixton's portfolio would be vulnerable to a further downturn in the economy. Wheeler said that in recent months "sentiment has worsened" but as yet, "we have still not seen any major negative impact on our portfolio."

Good lettings were still being achieved in the best properties, but leasing second-hand space was slowing, he said. Tenant defaults were rising, but still at a modest level, and while more tenants were seeking assistance with the frequency of rent payments, "we have few bad debts".

The group's net debt/equity rose from 55 per cent at the end of December to 69 per cent. But its debt to value ratio was lower at 42 per cent, up from 37 per cent.

Wheeler also protested against "empty rates" the tax owners of unoccupied property are now having to pay, which cost the group £1.6 million in the first half. He said this was putting an extra financial burden on commercial property. However, he said there were "signs that the effect of the legislation is being seen as politically unacceptable". Labour MPs in industrial constituencies were beginning to voice concerns, Steven Owen, finance director, said, particularly as some owners of empty buildings were demolishing them to avoid the rates. - ( Financial Times service)