UK commercial property returns rise to 29 month high, says IPD
Monthly commercial property total returns rose to 0.9 per cent in August, their highest since March 2011, as improvements in the wider economy continued to filter down into real estate performance.
According to the IPD UK Monthly Index, returns were boosted by a 0.4 per cent rise in property values, which have grown by a cumulative 0.8 per cent over the four straight months since May. Income returns, at 0.6 per cent, have remained steady over the same period.
Comparatively, bonds and equities delivered -1.6 per cent and -2.4 per cent in August (JP UK Morgan 7-10 Year, MSCI UK).
All three main sectors saw rising total returns off the back of capital growth, but critically the retail sector saw growth for the first time since October 2011.
Retail property values rose by 0.1 per cent in the month, and though slight, this halts a 21-month cumulative decline of 7.1 per cent and led to a total return of 0.7 per cent. Critically, growth was not just restricted to London, with shops and retail warehouses around the UK seeing stable or growing property values. However, shopping centres continued to see falling values.
Regional assets in the office and industrial sectors also saw rising returns as growth and improving sentiment filtered out of London and the South East.
Offices returned 1.1 per cent overall as capital values grew by 0.6 per cent, and saw rising total returns and values in all but two of the eight regional segments measured.
Returns in the industrial sector were their highest in over three years, at 1.2 per cent, driven in equal measure by strong capital growth of 0.6 per cent, and an income return of 0.6 per cent by assets around the country.
Rental growth was more uneven around the UK. For all UK property, rents rose by 0.1 per cent, driven by a rise of 0.3 per cent for offices and 0.1 per cent for industrial units. However, in the retail sector, there continued to be a decline of 0.1 per cent and demand in local regional occupier markets remains haphazard.
Phil Tily, executive director and head of UK and Ireland, IPD, says: “This time last year, values were falling by 0.3 per cent and the economy looked ready to slip back into recession. However, in twelve months we have seen economic growth returning (if indeed it ever left), consumer and business confidence rising, and a raft of improvements in other economic indicators.
“As this growth moves further out of London, income and value add opportunities in the regions, where income yields often exceed 8 per cent, will start to attract investors willing to move up the risk curve.”