UK rental values have shrunk by 0.2% in the three months to the end of August, thanks to falling tenant demand, according to the IPD Quarterly Property Index.
Although the decline appears small, it hides the disparity across the UK market. London saw rental growth of 0.4% for City offices in August, whereas rents for retail in Wales and Yorkshire and Humberside – among the worst-performing sectors – fell by 5.6% and 4.8% respectively.
Property has underperformed relative to both gilts and equities in the first eight months of the year, returning just 1.6% compared with 5.2% for gilts and 7% from equities.
However, an income return of 4.5% for all classes of property and the sectors low volatility mean that is still appealing to investors when compared with gilts and equities, which both suffer from high volatility and low yields.
Phil Tily, managing director of IPD UK and Ireland, said:
“Though interest remains for heavily discounted assets in the UK’s regions, with income yields sometimes in excess of eight per cent, without tenant and income security they remain a risky prospect for investors.
“Until occupier demand starts to stabilise outside of London, which will inevitably be reliant on the UK coming back out of recession, and a degree of consumer confidence returns to the market, it is going to be difficult to sustain the high initial income over the long term.”
Sophia.Furber@estatesgazette.com
