UK commercial property has recorded a negative – albeit slight – capital decline, for the first time in 28 months according to the IPD UK Monthly Index.
Total return, at 0.5%, was driven entirely by income return. The negative capital growth, signalling the end of the UK property recovery, was driven by declines in the retail sector, at -0.1%.
IPD UK and Ireland client services director, Malcolm Hunt, said “Poor economic growth forecasts, the ongoing eurozone crisis, high unemployment and inflation still hovering around 5% has left consumers and businesses, occupiers and owners alike feeling out of pocket.
“Deep uncertainty about the potential of the UK to avoid recession next year is now finding its way into property values.
“The recovery in UK property values saw 27 months of growth amounting to 17.8%. This followed falls of 44.1% between June 2007 and June 2009.”
A combination of steadily declining occupier demand outside of London and fading investor sentiment has largely driven the declines in retail values.
London is still seeing positive capital growth, but this is now being outweighed by poor regional performance. Standard retail in the rest of the UK recorded negative capital growth of -0.4%.
Shopping centres inside and outside of London saw falls in value of -0.4% and -0.5% respectively.
UK offices, still the only sector to see positive capital growth, at 0.1%, have nevertheless seen a tailing off in City offices value change, now down to 0.1%.
Returns have increasingly been driven by the West End, which saw capital growth of 0.7% in November and 8.2% for the year to date – entirely driven by rental growth.
“Outside London, office value movements remained negative across all regions, while the accumulation of stock for sale, and subsequent uncertainty in investor sentiment, has led to a slowdown in the City,” continued Hunt.
“West End offices, seen as a safe haven to store wealth by investors, continue to go from strength to strength.”
Total return for the calendar year to date (11 months) is 7.6%, with a capital return of just 1.3% over that period.
The IPD said if returns continue at November levels for December, total return would amount to 8.1% and capital return would remain positive for the year, at 1.2%.
Capital growth on a rolling 12-month basis is 1.6%.
bridget.oconnell@estatesgazette.com
