Slowing capital value growth and diminishing total returns did not deter investors from piling into UK property in the third quarter.
The IPD UK Quarterly Property Index found that purchase activity increased 14.6% in the three months to the end of September as investors looked to UK real estate “as a relative safe haven during very uncertain times”.
UK funds chasing income return were prominent purchasers during the quarter as capital values rose by just 0.3% and total return dipped to 1.8%. The figures reflect slow economic performance in the UK, which weakened occupier demand and lowered values.
In Q2 the IPD index recorded a total return of 2% and a 0.5% increase in capital values.
Authorised property unit trusts were the largest investment group over the quarter, during which net investment totalled £1.5bn – or 1.3% of the IPD Quarterly Universe’s total capital value.
Net investment into alternative assets rose markedly over the period to £402m or 5.9% of the segment’s total capital value.
The alternative segment includes healthcare assets, student accommodation, hotel and other leisure properties, and is now larger than the IPD regional office segment and the City office segment, as investors look increasingly to diversify their portfolios.
Over the past 12 months the size of the alternative segment has increased by 21.3%.
The stagnating economy, increasing inflation, austerity measures and general uncertainty about the UK’s ability to avoid recession have all led to rental growth tailing off to just 0.1%.
The retail and industrial sectors strayed further into negative territory, both recording negative rental growth of -0.2%.
