UK commercial property returned 1.9% in the three months to 30 June, as signs of growth in the wider economy started to feed through into real estate performance.
Capital values rose by 0.4% during the period, bringing an end to an 18-month period of decline.
The three main sectors showed positive growth, with shops, offices and industrials returning 1.5%, 2.3% and 2.3% respectively. Office values grew by 1.0%, while industrial values rose by 0.6%. Even the troubled retail sector saw capital growth of 0.1%, following a decrease in values of 0.5% in the first quarter.
Capital values were driven not only by London and the South East, but by some strong performance in the regions. Eight of the UK’s cities recorded capital growth during the second quarter. Aberdeen, Cambridge and Guildford were the top performers, with returns of 2.3%, 2.4% and 2.4% respectively, nearly as high as the 2.6% delivered by Greater London.
However, Manchester, Birmingham and Edinburgh continued to see falling values and limited returns.
Over 65%, or £70bn, of IPD’s measured UK assets are located beyond the M25.
Property outperformed both equities and bonds during the quarter, which returned -2.0% and -4.4% respectively.
Greg Mansell, vice-president and head of applied research at IPD, said: “Commercial property performance mirrors that of the wider economy, and it is the UK’s return to growth, more than anything else, that is driving occupier demand and improving market sentiment.
“It is the implications for the UK’s regions that are possibly the most important. Since September 2009, the gap in capital values between London and the rest has grown by over 35%, but with conditions improving, carefully chosen assets could suddenly be given a new lease of life – particularly for investors pushed out of London.
“With bond yields predicted to remain low, the potential for income generating real estate outside of London is enormous.”
sophia.furber@estatesgazette.com
