UK Property News 14th July 2011

UK commercial property markets are now one month shy of a two-year period of unbroken capital appreciation following a 20 basis points climb in prices last month, according to IPD. Values have recovered by 17.3% since August 2009, but the revival has stuttered now for more than a year, IPD’s latest UK Monthly Index for June shows. For the second quarter capital growth was just 40 basis points, the shallowest quarterly rise in values for two years. Malcolm Hunt, UK and Ireland client services director, said capital is “likely to remain under pressure until the secondary market improves”. Hunt said: “Yield compression has continued at a trickle, and rents have failed to pick up the slack, remaining flat for the quarter. Continuing wider macro-economic turmoil, and the uncertainty surrounding the secondary market, has meant that outside of London growth remains largely flat or negative, as investors and occupiers continue to shy away from risk.” Sector level rental performance remains unconvincing, IPD said. Retail and industrial rents over the month declined by -0.1% and -0.2% respectively, while the office sector benefited from a 40 basis points uplift. Outside London, however, office rents fell away. Hunt added: “The importance of active management in the current market cannot be ignored, the recent spate of retail administrations being a case in point. The latest administrations could wipe up to £393m from rent payments to UK landlords over the course of their leases, though of course actual losses are being mitigated by pro-active asset management.” The 12-month change in capital values is now just 2.0%.