Weaker growth and lower activity levels
Some recent data has highlighted the slowdown in commercial property markets: IPD last week said its monthly index for October recorded just 0.1% capital growth, after virtually flat rental value growth (down just one basis point) offset by a slight positive yield impact of 24 basis points.
This is the 15th consecutive month of positive capital growth, although it was very slight in October. “The continued modest positive capital growth in the UK commercial property market reflects an attenuation of yield contraction and rental declines,” explained Phil Tily, IPD UK managing director. “Over the year to date, values have risen by 6.5%, predicated on a 70 basis point yield contraction, to 7.4%. Rents have had a negative influence, falling by one percent, over this time period.”
Meanwhile Savills last week reported a third consecutive month of declines in commercial property development activity. Its October Commercial Development Activity Index showed that public-sector development continued to fall, but private-sector activity did increase moderately in October after two months of contraction. About 26% of the developers surveyed recorded a fall in overall activity in the month, compared with 18% indicating a rise. The index posted minus 8.3% in October, improving from minus 13.8% in September.
The degree of negative sentiment among those surveyed worsened in October, but remained above August’s 18-month low. Developers expected activity to decline during the next three months, in all three subsectors, but were most negative about the prospects for development in the office sector. Concerns about obtaining credit, the general economic climate and public-spending cuts were all cited as reasons for their pessimism.
