Sombre start to 2012 – IPD
The IPD’s latest Monthly Index for UK commercial property paints “a fairly sombre picture” for the start of the year, the IPD says, but it notes that there are some areas for optimism.
The IPD UK Monthly Index for January showed capital values fell by another 0.2% and total returns fell to 0.4%, the lowest since June 2009. Rental values have now been negative for three of the past four months. While yields saw slight expansion, fragile occupier demand is still the main driver behind falling capital values, explained Phil Tily, managing director of UK and Ireland at the IPD.
“With so much uncertainty still surrounding the future of the UK and the Eurozone, and reports indicating that the UK economy is falling back into recession, it’s no surprise that demand from tenants remains lacklustre across all sectors,” he added. “The recent quantitative easing announcement by the Bank of England shows just how hard the authorities are trying to increase spending.”
However, Mr. Tidy also pointed out that income return remained steady in January, at 0.5% at the all-property level, and added that “it remains important to remember that in a very uncertain market, commercial property is still returning 0.4% to investors”.
The index showed a decline in rental values for office space in London, for the first time since October 2010. Rental values fell 0.1% for office space in the City of London and growth in rents for the outer London area slowed to just 0.1%. For offices in the West End and Midtown office space, rental growth was zero. Mr. Tidy said investors have started to question the City’s ability to maintain rental growth in the short term, after a period of strong growth since the recession began.
Within the retail sector, while capital values rose for retail premises in Central London and for the retail warehouses subsector, there were declines of 0.5% for shopping centres in London and the South, while those in the rest of the UK fell 0.7%. Rental values for retail space fell “almost universally” for standard retail units across the country, apart from in Central London. And even retail warehouses in London and the South East saw rental values decline 0.1%.
