Commercial property returned 1.1% in October, as improvements in UK economic performance continued to drive regional growth.
According to the IPD UK Monthly Property Index, property values increased by 0.6% for the month, now matching income returns of 0.6% as an equal driver of total returns.
In comparison, returns for equities were 4.3%, and 0.7%, for bonds over the same period.
All three main sectors continued to see increasing property values and improving performance. Offices delivered the strongest growth with a 0.9% uplift in capital values.
Overall office returns were 1.5%, but rose to 1.8% and 2% in the inner and outer South East markets, where capital values also increased by 1.1% and 1.4% respectively.
Interestingly, returns for central London offices were lower at 1.5%.
Economic improvements outside of London have led to more demand for space from expanding office occupiers and improving sentiment among valuers.
Similarly, this regional growth has spurred returns for industrial units. Both offices and industrials saw a matching positive rental value growth of 0.1%.
Industrial returns increased to 1.5% for the month, with values up by 0.8%.
Around the UK, all seven industrial regions measured in the index saw a rise in values, with the outer South East and Midlands and Wales the major beneficiaries with growth of 1.2% each.
Recovery was less uniform in the retail sector, which returned 0.8% overall. Property values grew by 0.3%, as conditions outside of London slowly improved, but increasing online sales and restructuring in the sector are continuing to impact on occupier demand and sentiment.
Returns for shops, shopping centres and retail warehouses in London and the South East rose along with more encouraging capital value movements, but retailers and landlords in the North and Midlands continued to see more subdued conditions.
Overall, improving occupier fundamentals remain a key driver of returns. Capital growth has largely been a product of improved valuer sentiment, but this in itself, has been driven by more secure demand for space. Rental values increased overall by 0.1%, but for those sectors and geographies seeing higher growth, occupier demand was also greater.
Phil Tily, executive director and head of UK and Ireland at IPD, said, “Returns are continuing to rise around the UK as economic growth flows out of London. Office returns in the South East outpaced those of central London, while industrial units around the country are seeing stable growth as investor sentiment improve.
“For the retail sector, performance remains more divided by both asset class and region, and the Christmas build up will be a testing time for retailers and landlords. Recent closures show the still difficult trading conditions for many in the sector, and this is subsequently leading to continuing caution amongst asset owners and occupiers.”
bridget.o’connell@estatesgazette.com
