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UK commercial property sees largest value growth of 2014

Commercial property values in the UK rose by 1.1 per cent in May, a further increase on the 0.8 per cent growth seen in April, marking the highest monthly increase of 2014 to date.

According to the IPD UK Monthly Property Index, values have now risen by 8.5 per cent over 13 months of consecutive growth, although they still have some way to go before reaching the peak levels of 2007.
UK commercial real estate returned 1.6 per cent for the month, with income return standing at 0.5 per cent. Comparatively, bonds returned 0.9 per cent and equities 3.2 per cent (JP Morgan 7-10 yr/MSCI UK).
Industrials reclaimed the leading sector spot, returning 1.8 per cent in May 2014, compared with 1.7 per cent for offices.
Despite an increased return of 1.4 per cent compared to 1.0 per cent in April, retail continued to lag behind other sectors continuing a trend that has existed since the start of the recovery in May 2013.
However, capital values for retail still continued to grow, by 0.9 per cent in May, although this was behind the 1.2 per cent growth delivered by industrials and 1.3 per cent by offices.
From a regional perspective, outer South East offices was the strongest performing market, returning 2.2 per cent in May, compared with 1.8 per cent in central London. This represents a return to the trend of recent months with offices in the South East outperforming the capital.
Central London remains strong, with rental values rising by 1.3 per cent within the office sector, compared with 0.7 per cent for the rest of London and 0.7 per cent for the UK office market as a whole.
Retail rents grew across the UK in May, with standard shops in central London and the South East rising by 0.7 per cent and 0.1 per cent respectively. Shops in the rest of the UK and retail parks experienced some growth.
Investor demand for UK property remained strong in May, with yields compressing across the country.  The average equivalent yield of 6.9 per cent at the end of May remains attractive for income-focused investors, compared to the pricing of other alternative asset classes.
Offices in the outer South East saw the most favourable yield adjustments, adding 2.0 per cent to capital values, with retail units in central London witnessing a 1.8 per cent yield impact on values reflecting continued strengthening of investor demand.
Phil Tily, executive director and head of UK and Ireland, IPD, says: “We have now seen 13 consecutive months of capital value growth for the UK market as a whole, evidence that the UK continues to be very attractive to investors.”
The IPD UK Monthly Property Index measures ungeared total returns to directly held standing property investments from one open market valuation to the next. The index tracks performance of 3,397 property investments, with a total capital value of GBP36.6 billion as at April 2014.

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