UK commercial property values rose by 0.6% in September, the highest monthly growth since April 2010, according to the IPD UK Monthly Property Index.
Total returns for the month rose to 1.2%, with capital growth now the principal component of performance. Comparatively, bonds and equities delivered 0.7% and 0.8% respectively in September (JP UK Morgan 7-10 Year, MSCI UK). All three mains sectors saw growing capital values, which led to total returns of 0.8% for retail, 1.4% for industrials, and 1.5% for offices. The most significant capital growth was for UK offices, which saw values rise by 1.0% in September alone, up from 0.6% in August. This growth was predominantly driven by the South East market, which has seen a significant improvement in the last six months as economic growth spills out of London.
The retail sector also continued to see improvements. Capital values rose for the second consecutive month by 0.3%, continuing the recovery that began in August after almost two years (21 months) of declines.
As growth has not been restricted to London, and as economic sentiment has improved, so have returns in the UK's regional centres. In the retail sector, retail warehouses and shopping centres around the UK are seeing positive results under capital growth, while for standard shops, only three regions (from a total of 13) are still experiencing declining property values: the North East, Yorkshire and Wales.
Similarly, offices around the UK are now reporting an upturn in all regions, except the South West, while industrials are benefitting from growth in all market segments
Rental values also grew in September, though at a more subdued rate of 0.1%. While office rents increased by 0.5% overall, industrial levels were static, and the retail sector saw declines of 0.1%.
Phil Tily, Executive Director & Head of UK and Ireland, IPD, says: "the property sector is back into full swing after the summer, there are a number of reasons to be more confident about the market. An ongoing improvement in investor sentiment, prompting further yield compression has helped the market deliver a predominantly capital based return this month."
"While values may be improving, occupier demand and rental growth remains relatively subdued. Investors looking to property allocations to provide long-term income streams and stability, still have to work on an asset-by-asset basis, with opportunities for active management and future supply and demand carefully examined".