Retail gloom continues – IPD
There was a further 0.3% decline in property values in December, says the IPD, taking values at the headline level for the full year to minus 4.2% in what it describes as a “challenging year for the UK commercial property sector”. The retail sector has faced the toughest challenges of all.
The overall capital declines reflect weak investor sentiment and lacklustre occupier demand against a background of stalling austerity cuts in the UK and the effects of potential eurozone defaults, the IPD says. Despite all this, the total return for the year has remained positive at 2.4%, thanks to income returns of 6.8%, but this compares with a total return of 8.1% in 2011, when capital value growth was still positive at 1.2%.
The IPD notes that rental value growth turned positive in December, as the office and industrial markets improved – but the retail sector continued to struggle last month, with further rental value falls of -0.15% in December taking the decline for the year to minus 1.3%. Values for high-street retail property fell by more than 10% in some regional markets, the IPD notes, and the outlook remains subdued for these centres; values for shopping centres were also hard hit, falling by more than 8% across the country. Retail capital values fell by 5.8% overall, making it the worst performing sector of 2012.
“While there have been some good news stories emerging from the sector over Christmas, and while landlords and tenants are starting to encourage a multi-channel, multi-tiered approach to retailing, occupier demand continues to suffer at the hands of austerity and a weak economy, making it a very difficult environment for all,” noted Phil Tily.
As noted elsewhere on this blog, the gap between London and the rest of the UK widened during the year as safe-haven investors from overseas piled into property in the capital. Standard values for Central London retail property rose 6.8% over the year, while those outside the South East declined 9.9%, the IPD points out, while in the offices sector, City office space saw growth of 1.7% while offices outside the South East suffered a 10.4% decline.
Phil Tily, IPD managing director for UK and Ireland, said: “A key question for 2013 will be whether parts of the secondary market, with potential for active management, see more interest as investors shy away from expensive prime London, or whether further economic shocks and slow domestic growth continue to push investors to low-risk assets.”
