UK commercial property capital values have plummeted by the largest ever monthly figure in IPD’s 22-year history, at -4.3%, according to the UK Monthly Property Index for October 2008.

The Index showed All Property total returns falling to -3.8%, fractionally deeper than the monthly returns recorded last December, which were -3.7%, serving to emphasise that the UK commercial real estate market has now fully entered a ‘double dip’ phase. All Property total returns were supported modestly by income returns, steady at 0.5% for the third successive month.

Across all sectors rental value growth fell for a sixth-month, by -0.3%, and at a quickened pace relative to September’s -0.2% fall. This, combined with a -4.2% yield impact, were the key drivers for the decline in capital values over the month.

The steepest capital value falls were within the Retail sector, which fell -4.7%, this itself was another record monthly decline, comparable only to last November’s -4.3% drop. Income return, at 0.5%, helped to modestly mitigate the total return for the Retail sector, which stood at -4.2% in October.

In the Office sector, total returns were -3.7%, again driven by steep monthly capital value falls of -4.3%. Particularly significant falls in rental value growth were recorded, at -0.7%, which are the deepest in almost five years.

By contrast, the Industrial sector saw the shallowest falls in capital values, although still at a relatively steep -3.2% drop. There was flat rental value movement over October, compared to -0.1% in September. Overall, total return for the Industrial sector was -2.7%.

Malcolm Frodsham, Director of IPD, said: “The pace of capital value falls over October fully confirms market expectations and it remains to be seen, from this point, whether values have now fallen to a point where equity investors are prepared to step back into the market in any force. The industry is braced for further falls in the remaining two months of 2008 but so rapid have been the falls that it is possible that the asset price deflation will soon have run its course. The key indicators to watch in the industry are the level of new money and redemptions from Retail and Institutional Unitised funds in the IPD Pooled Funds Index and the level of voids in the IPD Monthly Index – particularly especially after the Christmas and January sales period.”