Total return for October was 0.3%, a small increase on September, as capital
declines eased slightly, to -0.3%. However, little has changed in the regional
markets – selecting the main 22 sectors measured by IPD, all those outside of
London, except supermarkets, were still seeing declining values this month.
Austerity cuts stifling regional demand?: Though the news that the UK
economy emerged from recession last month was
welcomed across the industry, the effects of austerity cuts and slow economic
growth have continued to lead to sluggish occupier demand – with rental values
falling by a further -0.1% in October, their fifth consecutive month of decline.
Outside of the South East, rental values fell by up to -1.0% in October alone in
one of the more beleaguered parts of the market, rest of UK standard retails.
Current yield levels continue to drift out, with investors mindful of lacklustre
demand, and their ability to re-let at current rental levels.
Phil Tily, IPD managing director for UK and Ireland said:
“Twelve months of
falling capital values marks another rather unfortunate milestone
for the UK property sector, but there has been some improvement in underlying
performance for the last few months.
“Unfortunately, occupier demand and valuer sentiment remain extremely
and there has been little good news to boost either. For every positive report
regarding the economy, another causes dismay, and this is taking its toll on
and rental values outside of London.
“The UK’s recovery is expected to be slow and difficult, and it looks like
this is set to
be the case for the property market too, but investors can, at least be thankful
though the situation could have been a lot better over the last twelve months,
also have been a lot worse.”
Asset class comparisons: In the last twelve months, property has
underperformed both equities and gilts, due
to its capital declines, returning 3.1%, against 9.8% from equities and
7.6% from Gilts (British government bonds).
However, income return alone was 6.8% for last twelve months, and the
volatility of that income offered on UK property continues to make it an
alternative to Gilts and Equities, which are still suffering from low yields and
Furthermore, since the downturn, the focus of UK property managers has been
stabilise and secure income streams, through effective asset management.
a separate report
[pdf], IPD said many regions have
seen values for secondary stock slump to a new low, more than 50% below
their pre-recession peaks – and these declines have shown no sign of
abating in the last year.
In the worst hit secondary market, South West
offices, which has recorded a fall of over
65% from the market peak in Q2 2007, the declines have been comparable to
those seen in Ireland, where office prices have fallen by 65%.
The worst hit region for retail has been the
North West, where values have fallen 55% from the market peak.
IPD said that while London‟s prime assets have
held up well due to its 'world city' status, values in
many areas of the country have been slashed, and over the last 12 months have
recorded falls of over 12%, according to the first IPD Regional Yield Quartile
Analysis - - which measures the performance of prime and secondary retail, office
industrial stock, as defined by equivalent yield quartile, across 11 UK regions.
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