Commercial property values in the UK rose
by 1.1% in May, a further increase on the 0.8% growth seen in April, marking the
highest monthly increase of 2014 to date.
According to the
IPD UK Monthly Property Index,
values have now risen by 8.5% over 13 months of consecutive growth, although
they still have some way to go before reaching the peak levels of 2007.
UK commercial real estate returned 1.6% for the month,
with income return standing at 0.5%. Comparatively, bonds returned 0.9% and
equities 3.2% (JP Morgan 7-10 yr/MSCI UK).
Industrials reclaimed the leading sector spot, returning
1.8% in May 2014, compared with 1.7% for offices.
Despite an increased return of 1.4% compared to 1.0% in
April, retail continued to lag behind other sectors continuing a trend that has
existed since the start of the recovery in May 2013.
However, capital values for retail still continued to
grow, by 0.9% in May, although this was behind the 1.2% growth delivered by
industrials and 1.3% by offices.
From a regional perspective, IPD says outer South East
offices was the strongest performing market, returning 2.2% in May, compared
with 1.8% in central London. This represents a return to the trend of recent
months with offices in the South East outperforming the capital.
Central London remains strong, with rental values rising
by 1.3% within the office sector, compared with 0.7% for the rest of London and
0.7% for the UK office market as a whole.
Retail rents grew across the UK in May, with standard
shops in central London and the South East rising by 0.7% and 0.1% respectively.
Shops in the rest of the UK and retail parks experienced some growth.
Investor demand for UK property remained strong in May,
with yields compressing across the country. The average equivalent yield of 6.9%
at the end of May remains attractive for income-focused investors, compared to
the pricing of other alternative asset classes.
Offices in the outer South East saw the most favourable
yield adjustments, adding 2.0% to capital values, with retail units in central
London witnessing a 1.8% yield impact on values reflecting continued
strengthening of investor demand.
Phil Tily, executive director &
head of UK and Ireland, IPD, said: "We have now seen 13 consecutive
months of capital value growth for the UK market as a whole, evidence that the
UK continues to be very attractive to investors."
The IPD UK
Monthly Property Index measures ungeared total returns to directly held
standing property investments from one open market valuation to the next. The
index tracks performance of 3,397 property investments, with a total capital
value of £36.6 billion as at April 2014.