Further falls in December round off a year of declining values in the UK, says IPD
A further 0.3 per cent decline in property values in December marked the end of a challenging year for the UK commercial property sector, which saw values at the headline level fall by 4.2 per cent for the year as a whole.
Weak investor sentiment and lacklustre occupier demand contributed to the capital declines, at the mercy of stalling austerity cuts at home and the effects of potential Eurozone defaults on the continent.
Despite this, total return for the year has remained positive, at 2.4 per cent, buoyed by income returns of 6.8 per cent.
However, this is a considerable reduction on the 8.1 per cent total return delivered in 2011, when capital value growth, of 1.2 per cent, still contributed a positive influence. Capital values remain 37 per cent below their 2007 peak.
The disparity between London and the rest of the UK has been exacerbated throughout the year, partly fuelled by safe haven buyers from overseas. Central London standard retail values rose 6.8 per cent over 2012, while those outside the South East suffered declines of 9.9 per cent. Similarly, City offices saw growth of 1.7 per cent, while offices outside of the South East suffered declines of 10.4 per cent.
Phil Tily, IPD managing director for UK and Ireland, says: “The polarisation between London and the rest of the UK has led to considerable interest in the fate of the secondary and regional markets, where discounted values have pushed initial yields to in excess of eight per cent in some sectors.
"A key question for 2013 will be whether parts of the secondary market, with potential for active management, see more interest as investors shy away from expensive prime London, or whether further economic shocks and slow domestic growth continue to push investors to low risk assets."
The market can take some comfort from the fact that rental value growth edged into positive territory in the final month of the year, with improvements reported in both the office and industrial markets.
The retail sector continued to struggle, seeing further rental falls of 0.15 per cent in December, and 1.3 per cent for the year.
Outside of Central London, where values for high street retails in some regional markets fell by more than 10 per cent in 2012, the outlook remains subdued, while shopping centres had an equally hard year, losing in excess of 8 per cent of their values across the country.
For the sector as a whole, capital values fell by 5.8 per cent in 2012, confirming retail as the worst performing sector in 2012.
Tily says: "The latest retail casualties, Jessops and HMV, provide further evidence that the restructuring seen throughout 2012 is continuing into the New Year.
"While there have been some good news stories emerging from the sector over Christmas, and while landlords and tenants are starting to encourage a multi-channel, multi-tiered approach to retailing, occupier demand continues to suffer at the hands of austerity and a weak economy, making it a very difficult environment for all."
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