Commercial property values in the UK rose by 0.8 per cent in April, a somewhat lower rate than the 1.1 per cent seen in March, but still higher than in the first two months of 2014.
According to the IPD UK Monthly Property Index, values have now risen by nearly eight per cent over the last 12 months of consecutive growth, although overall they still remain below their 2007 peak levels.
UK commercial real estate returned 1.3 per cent for the month, with income return standing at 0.5 per cent. Comparatively, bonds returned 0.7 per cent and equities 3.2 per cent (JP Morgan 7-10 yr/MSCI UK).
Offices, returning 1.8 per cent in April, overtook industrials on 1.5 per cent as the leading sector, regaining the position they had held in January. Retails however lagged the other sectors once again, as has been the case in every month since the market recovery began in May last year.
Retail capital values continued to grow, by 0.4 per cent in April, though this was well behind the 0.9 per cent growth delivered by industrials and 1.3 per cent by offices.
From a regional perspective, Central London markets led the way once more, with standard shops in Central London returning 2.4 per cent in April, and offices in Central London 2.0 per cent. This represents something of a reversal compared to recent months, when offices in the rest of the South East tended to be the strongest performing markets.
This reflected the strength of the Central London office occupier markets, as rental values rose by 0.5 per cent in the segment, compared with 0.2 per cent for all UK offices and 0.1 per cent for the UK market as a whole. After a month in positive territory, retail rental values declined once again, albeit by just 10 basis points. Rental values rose marginally in the London retail markets, but fell back in most other parts of the country.
In spite of the overall muted rental performance in April, investor demand for UK property remained strong through the month, with yields continuing to see compression right across the country. An average equivalent yield of 7.0 per cent at end-April looks to remain attractive for income-focused investors, compared to the pricing of other alternative asset classes.
Offices in London and the South East saw the biggest yield impacts on capital growth through the month, with the notable exceptions of Central London retail and standard industrials outside the South East.
Phil Tily, executive director and head of UK and Ireland, IPD, says: “With the UK market having now seen a continuous 12 months of rising values, the attractiveness of the broad range of property types across the UK looks undiminished.
“And occupational markets, while not as yet witnessing a dramatic take-off, are nevertheless on a solid upward trend. Rental conditions in the retail sector are however clearly challenging. General improvements in the UK economy are being tempered by structural challenges facing the retail sector, in particular the rise of online retail activity.”