Total return for commercial property in 2011 was 8.1%, according to the IPD UK Monthly Index. Capital growth slowed to 1.2%, while income return amounted to 6.8%.

Capital values fell for the second consecutive month in December, by -0.1%, making growth just negative overall for the last quarter of 2011. Total return, which stood at 0.5% for all property in December, was down in all three market sectors.

Phil Tily, managing director of the UK and Ireland, said: “While growth for the year remained positive, the outlook for 2012 is less than ideal. During  the last three months of the year, as the Euro situation worsened and the threat of  recession increased, returns tailed off considerably. The retail sector was the hardest hit in Q4, seeing values fall by -0.3%, whilst industrial values fell by -0.2%. Office growth remained positive, at 0.2%, but even this represented a considerable slowdown.

“Hopes were high at the beginning of 2011 - - sectors such as shopping centres and  City offices were expected to perform well - and by mid-year talk was about a recovery in the secondary sector. However, the worsening situation in 2011 has seen expectations cut, and 2012 may be a year of re-evaluation in regards to pricing levels, and a heavy concentration on income.”

City office worries

For the first time in 27 months, City offices saw their values fall, by -0.1%. After  losing about 50% of their value during the 2007-2009 period, they recovered  approximately 35% until November 2011.

“Investor demand has remained strong over the last year, but yields had a negative impact in November/December, as investor sentiment was hit by the overall uncertainty in the market and reduced prospects in the financial services sector. Rental growth, though still positive at 0.3%, has been disappointing compared to expectations.” continued Tily.

“In the West End, where the market is a lot tighter, and where supply is more restricted, capital growth remained strong in December, at 0.7%.”

Retail falls

“Challenges in the occupier market have been noticeable in the retail sector, where rental values continued to fall, -0.1% for December, and -0.9% for the year. This, with a further softening of yields, has seen values fall -0.2% in December,” added Tily.

The much talked about regional variations in performance are especially evident amongst shopping centres, where December returns remained positive in London and the South, at 0.4%, but with a -0.5% return in the rest of the UK.

Outside of Central London, standard retail units across the UK recorded either flat or  negative value movement for the month. The hardest hit areas, the South West, Wales and Yorkshire and Humberside, saw values fall by -0.7%, -0.7% and -1.0% respectively

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