UK commercial property capital
growth flatlined in October as the continuing crisis in the Eurozone, and the
very real doubts about its resolution, took their toll on occupier demand and
investor sentiment. Total return for October was almost entirely income driven,
at 0.6%, according to the
IPD UK Monthly Index.
For the first time since April
rental value levels stepped down, while yield compression slipped to negligible
Phil Tily, IPD UK and Ireland
managing director said, “Central London retail and office values have been
driving returns since the recovery began. However, in the last few months there
have been increasing concerns over a pricing bubble in the capital, which the
European economy could further exacerbate.”
Central London offices saw capital
growth slow to 0.4%, explained by cooling rental value movements. Outside of the
centre, the rest of London offices - which had for the last six months seen
value increases of 1.2% as investors looked for more competitively priced assets
- in October saw values and rental growth slow to zero. Outside the South-East
office values slipped further into decline.
Retail values, though flat, saw a
slight improvement on the -0.1% recorded in September. However the growth in
central London retail values fell 80 basis points, to 0.7%. Industrial values
saw a slight decline after posting positive results in September.
Year to date performance
Tily continued, “total return for
the calendar year to date (10 months) has been 7.0%, with capital return of just
1.3% over that period. Rental levels have held steady at the all property level,
as office rental value growth of 1.8% was offset by rental falls of -0.7% and
-0.8% in the retail and industrial sectors. If returns continued at October
levels for final two months of the year, total return would amount to 8.3% and
capital return would remain positive for the year, at 1.4%.”
27 consecutive months non negative
capital growth has seen values recover by 17.8%. On a twelve month rolling
annual basis, capital growth has slowed to just 1.7%.
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