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Monthly UK commercial property capital growth improved in March, at 1.6% compared to 1.3% in February, to deliver a compounded first quarter appreciation of 3.9%, according to the IPD UK Monthly Index. The 12-month capital growth rate is now 7.6% - - the highest since June 2007, which was the final month of capital growth before the collapse in values.
While the Q1 2010 growth is considerably below the 7.4% recorded on the Monthly Index for the final quarter of 2009, IPD says 3.9% still represents a significant quarterly growth rate. Quarterly capital growth has only ever been higher than this first quarter rate once during the last boom cycle between 2004 and mid 2007 - - Q4 2005’s 4.6%.
Within the month, the drivers of the monthly improvement in capital growth were rental and yield movements. Firstly, there was a continued improving rental picture last month, including the first sector-level positive rental growth emerging in offices. The office sector’s 10 basis points rental value growth was the first positive sector-level figure since October 2008 when the industrial sector fractionally climbed by four bps, and it was the first growth in office rental values for two years.
The average rental growth, however, remains negative, at -0.1%.
Secondly all property initial yields compressed by 10 basis points in March, to 6.7% - - completing nine-consecutive months of compression, in which time yields have come down by 120 bps (1.2%). Office yields have also compressed by 120 bps, to 6.9%, but over just eight months. Retail yields are shortest, at 6.4%, while industrial are the widest, at 7.3%.
Malcolm Hunt, Head of UK Client Services, said: “The 3.9% quarterly capital growth delivered in the first quarter is the third highest recorded since the property market rebound in the early 1990s. Going forward, the strength of the occupier market and stability of the wider economy, as we approach a possible change in Government, are crucial components for a continued market recovery. Over the last eight months capital growth has now reached 13.1%.”
Hunt added: “Based on the Monthly Index, three month total returns to the end of March were 5.7%, comprising the 3.9% capital growth and a 1.8% income return.”
