UK Property News 15th November 2011

UK commercial property values have finally come to a standstill after 17.8% price appreciation since the market began its recovery in July 2009.
The IPD UK Monthly Property Index – which measures £34bn worth of predominantly prime property – recorded flat capital growth, yield compression and negligible rental growth in October. Much of the worsening sentiment which affected valuers’ pricing for the October IPD Monthly Index would not have captured the deepening Eurozone crisis which gripped financial, banking and property markets since the turn of November causing many experts to predict capital depreciation over the final two months of the year. The 10-month year-to-date total return is 7.0%, almost entirely driven by income, with just 1.3% capital growth over the period. Phil Tily, managing director IPD UK and Ireland said if the 0.6% October total return was replicated over the final two months of the year, it would imply an annual total return for 2011 of 8.3%, including 1.4% in capital growth.
Looking at the sectors, Tily added: “Central London retail and office values have been driving returns since the recovery began. However, in the last few months there have been increasing concerns over a pricing bubble in the capital, which the European economy could further exacerbate.” Central London offices saw capital growth slow to 0.4%, explained by cooling rental value movements. Outside of the centre, the rest of London offices - which had for the last six months seen value increases of 1.2% as investors looked for more competitively priced assets - in October saw values and rental growth slow to zero.
Outside the South-East office values slipped further into decline. Retail values, though flat, saw a slight improvement on the -0.1% recorded in September. However the growth in central London retail values fell 80 basis points, to 0.7%. Industrial values saw a slight decline after posting positive results in September. The rolling 12-month capital growth is now just 1.2%.