UK property returns 0.6% in September as equities fall another -5.0%

October 2011: Commercial property delivered a total return of 1.9% for the three months to September, despite the wider market turmoil that has seen -13.5% wiped from the value of equities, according to the IPD UK Monthly Index and FTSE All Share Index.

Capital growth in September remained steady at 0.1%, buoyed by a strong performance in the Central London office and retail markets.

Despite growing concerns over a pricing bubble in the Central London office market, growth continued in September at 0.6%. However, there are indicators that despite the wider economic risk, investors are starting to look outside the centre to find more competitive assets. Offices in the Rest of London saw positive growth for the fifth consecutive month, of 0.5%.

“Occupier demand remained strong across the London office market,” said Phil Tily, IPD UK and Ireland Managing Director. “While there was mild yield compression, growth was predominantly off the back of continuing rental value growth, which is encouraging given the levels of uncertainty in the wider economy.”

In the retail sector, apart from the significant outperformance in Central London, values continued to fall by -0.1%. Retail warehouse growth slipped to a standstill, while shopping centres in both London and the rest of the country remained in decline. Rents for the retail sector continued to fall, by -0.2%, as occupier demand remained weak due to the falls in consumer spending.

Tily commented, “Interestingly, the industrial sector is seeing increasing signs of life. Capital growth was positive, albeit very slightly, for the first time in five months, most of which was concentrated in London and the South East. Growth was predominantly due to a shift in yields, as rents remained in decline.”

26 consecutive months of positive capital growth has seen values recover by 17.8%.

On a twelve month rolling annual basis, capital growth has slowed to just 1.7%.