U.K. property-services company King Sturge LLP expects commercial-property capital values to fall 15% in 2009, bringing the decline to more than 45% since 2007. That would exceed the 40% drop during the recession of 1990-92 and create a tenant's market, the firm predicted. J.P. Morgan also forecast peak-to-trough property-value declines of 50% in the U.K.

Landlords are expected to increase incentives and become more flexible with their tenants to help stem growing vacancies. Owners are concerned about liquidity as well as the so-called empty rates tax. Vacant property used to get generous tax breaks, but they have been greatly scaled back.

Offering concessions threatens to sap landlords' cash flow at a time when many are struggling to refinance debt coming due and cope with mounting vacancies.

Rent-free periods, the most crucial incentive for tenants, are averaging 18 to 24 months for a 10-year lease in the U.K., but will reach a firm 24 months by the end of the year, King Sturge predicts.

In London, which relies heavily on financial companies, rent-free periods could reach as much as 30 months for a 10-year term by the end of the year, up from 24 months, the firm says.

Retailers are a particular concern. A number of them have already gone into administration. Further collapses will weaken demand for space and rental values.

Some landlords are offering to let retail tenants pay monthly rather than quarterly to avoid vacancy rates that are expected to reach 15% for central shopping districts and 10% for shopping centers at the end of 2009, compared with 12% and 8% at the end of 2008.

Neville Pritchard of King Sturge said, "We are entering the third phase. Having had a loss of investor confidence and a loss of the finance market, 2009 is the year of the loss of rental values."

King Sturge predicts subsequent declines in retail rents of 5.6% in 2009, 4.7% in 2010 and 2.1% in 2011, compared with 0.4% in 2008.

Core prime central-London office rents are expected to experience a reduction of 15% to 20% by the end of 2009.

The head of the city agency at King Sturge, Mark Bourne, said prime City office rents would bottom out at about £45 ($67) per square foot, from £54.50 at the end of 2008, and that prime West End rents would "reach their floor" this year at about £80 per square foot, down from £100 per square foot at the end of 2008.

Real-estate-services company Jones Lang LaSalle said changes in office rents are more severe when net-effective rents, which incorporate rent-free periods, are analyzed.

Jones Lang City Agency Director Neil Prime said that "over 2009 we expect rent-free periods to move out to 28 months, which will give an annual fall in net-effective rents of 17% in the City of London, before growth resumes in 2011 and accelerates in 2012."

"Peak to trough, the fall in net-effective rents could be around 41% to 42% for both the City and West End," he said.

The hard times hitting shopping-center owners will help struggling retailers, as it will provide them with more negotiating power over landlords as they battle with weak balance sheets and weak demand from shoppers.

Retail experts say that some store owners are expecting something in return for tenants' concessions. For example, they may demand that retailers disclose more information on revenue and other financial matters.

Other incentives could include shorter leases and earlier break clauses as landlords, Charles Miller, retail-sector specialist at King Sturge, said.

The value of retail property is expected to fall 40% from the peak in 2007 to the end of the cycle in 2011, according to King Sturge. The worst-performing sector will be offices, which is expected to fall 50% in capital values from top to bottom and lag behind the average, resulting in slower recovery than retail.