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News : Property Last Updated: Aug 18, 2011 - 5:13 AM

Two years of UK commercial property capital growth dips to lowest in July since start of recovery
By Finfacts Team
Aug 18, 2011 - 4:05 AM

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The long drawn out decline in UK commercial property capital growth, in July dipped to its lowest rate since the recovery began, according to the IPD UK Monthly Index. Despite the UK market now seeing two full years of positive growth, declines in retail values leave offices as the only sector experiencing capital appreciation.

"With a 0.1% improvement in capital values this month, the balance between the performance of prime assets and the more challenged secondary markets remains finely poised," said Phil Tily, UK and Ireland managing director.

"Challenges within the wider economy have put further pressure on the market. The declines in the retail sector being a case in point. Consumer spending falls are impacting on occupier demand and while retail yields remained steady, a -0.2% drop in rental values has prompted a -0.1% decline in retail valuations for July.

The capital depreciation seen amongst unit shops in the rest of the UK has this month spread over to outer London and the rest of the South East. At the other end of the spectrum, London offices continued to record strong capital growth, which kept the overall levels for the office market positive for the month. "

Tily added: "While the Eurozone crisis and the American downgrading has led to a lot of talk regarding the UK as a „safe haven,‟ the slowdown in the UK economy has limited levels of growth in this month‟s results.

"That said, while yields on Government bonds remain low and with further uncertainty in the equities markets, property continues to hold its own against other asset classes. Yields at an all property level are 6.3%, delivering an income return of 0.5% for the month."

24 consecutive months of positive capital growth has seen values recover by 17.6%. On a twelve month rolling annual basis, capital growth has slowed to just 1.9%.

The IPD UK Monthly Property Index is based on a sample of 3,678 properties covering £34.3bn at the end of July 2011.

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