Monthly commercial property total returns rose to 0.9% in August, their highest since March 2011, as improvements in the wider economy continued to filter down into real estate performance. According to the IPD UK Monthly Index, produces by IPD London, returns were boosted by a 0.4% rise in property values, which have grown by a cumulative 0.8% over the four straight months since May. Income returns, at 0.6%, have remained steady over the same period.
Comparatively, bonds and equities delivered -1.6% and -2.4% in August (JP UK Morgan 7-10 Year, MSCI UK).
All three main sectors saw rising total returns off the back of capital growth, but critically the retail sector saw growth for the first time since October 2011.
Retail property values rose by 0.1% in the month, and though slight, this halts a 21-month cumulative decline of 7.1% and led to a total return of 0.7%. Critically, growth was not just restricted to London, with shops and retail warehouses around the UK seeing stable or growing property values. However, shopping centres continued to see falling values.
Regional assets in the office and industrial sectors also saw rising returns as growth and improving sentiment filtered out of London and the South East.
Offices returned 1.1% overall as capital values grew by 0.6%, and saw rising total returns and values in all but two of the eight regional segments measured.
Returns in the industrial sector were their highest in over three years, at 1.2%, driven in equal measure by strong capital growth of 0.6%, and an income return of 0.6% by assets around the country.
Rental growth was more uneven around the UK. For all UK property, rents rose by 0.1%, driven by a rise of 0.3% for offices and 0.1% for industrial units. However, in the retail sector, there continued to be a decline of 0.1% and demand in local regional occupier markets remains haphazard.
Phil Tily, executive director & head of UK and Ireland, IPD, said, “This time last year, values were falling by 0.3% and the economy looked ready to slip back into recession. However, in twelve months we have seen economic growth returning (if indeed it ever left), consumer and business confidence rising, and a raft of improvements in other economic indicators.
“As this growth moves further out of London, income and value add opportunities in the regions, where income yields often exceed 8%, will start to attract investors willing to move up the risk curve.”
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