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.
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