London City and West End offices resumed rental growth in January, at 0.2% and 0.3% respectively, according to the IPD UK Monthly Index in a month which also saw positive capital growth ease to 1.0%.

The broader office sector delivered flat rental value growth, which measures underlying movements in estimated rental levels, while at the all property level pressure eased to its shallowest decline, at -0.2%, since the collapse of investment bank Lehman Brothers sent UK commercial property prices tumbling.

IPD said Central London offices rental recovery is owed to its heightened sensitivity to economic sentiment, as the chart above illustrates. The sector fell steeper when markets were under pressure but recovered more rapidly as sentiment improved. The sector has also benefited considerably from overseas investors attracted by improving yields and the sterling depreciation.

Rental value growth in the retail and industrial sectors was -0.3% and -0.2%, respectively. All property initial yields are now 7.0%. Over January, a 61 basis points income return contributed to a monthly 1.6% total return. The 12-month change in capital growth is -1.7% – the shallowest negative annual rate since October 2007.

“The pattern of record rapid capital growth over the final quarter of last year followed by January’s more muted growth is the mirror opposite of the trend one year ago,” said Malcolm Hunt, Head of UK Client Services.“At the end of 2008, the UK commercial property market suffered the worst quarterly capital depreciation on record, followed by a noted ease off in the first month of the New Year.”

The positive yield impact, which has been the primary driver in aiding the rebound in commercial property values, has more than halved month-on-month in January to 1.2% from 3.5%, contributing to the slow down in capital growth. At the sector level, the office, retail and industrial markets delivered positive capital growth of 1.1%, 1.0% and 55 basis points.