UK commercial property values rose for the ninth consecutive month in January, as the UK’s improving economic performance continued to drive sentiment and growth in the property sector.
According to the IPD UK Monthly Property Index, property values have now risen by 9.8 per cent since May 2013.
Property values rose by 0.6 per cent in January, which pushed total returns to 1.1 per cent for the month. This failed to match the 2.1 per cent delivered in December 2013, which was aided by a flurry of deals pushed through before the close of the year.
Comparatively, equities returned -3.6 per cent, and bonds 2.3 per cent in January (MSCI UK, JP Morgan 7-10 year).
Offices delivered the highest total return of the three main sectors, at 1.7 per cent, driven not only by strong growth in markets in London and the South East, but also by continuing improvements around the UK. Overall, office values rose by 1.2 per cent.
Total returns for industrial units were 1.3 per cent, driven equally by income returns of 0.6 per cent and capital growth of 0.7 per cent.
Returns in the retail sector lagged those of office and industrial units, at 0.7 per cent, with capital growth of just 0.2 per cent. Despite the lower returns, almost all measured regions and types of retail around the UK are now seeing rising values.
Despite regional improvements in all three sectors, London markets continued to deliver some of the strongest returns, though for both offices and shops the highest returns were found outside the city centre – with the Rest of London segment returning 2.2 per cent for offices. Outside the Capital, Inner South East offices and Inner South East industrials delivered the highest returns, at 1.8 per cent.
Rental growth averaged 0.2 per cent for all UK property, but this disguised a still divided occupier market. Office and industrial units saw rents increase by 0.6 per cent and 0.3 per cent respectively, indicating the growing demand from recovering UK businesses for space. However, the retail sector, which continues to suffer from poor tenant and customer demand, saw rents fall overall, by 0.1 per cent.
Phil Tily, executive director & head of UK and Ireland, IPD, says: “Real estate values continued to rise in January, alongside continuing good news around the UK economy, though this was at a slower rate than the extremely strong growth delivered in December last year.
"While London is still leading the way in terms of growth and returns, there are steady improvements in regional or peripheral markets and these are starting to be underpinned with the emergence of rental value growth."