IPD: City offices drive marginal capital growth in May (UK)

Capital growth remained marginal in May, at 0.1%, according to the IPD UK Monthly Index, with rental value growth edging back into positive territory.

Phil Tily, Managing Director for UK & Ireland, said: "At the sector level offices posted a strong performance, with capital appreciation rising to 0.4%, driven by a small recovery in rental values, which rose by 0.2% for the sector.

"This was again off the back of a strong performance by properties in Central London, which saw a steady increase in capital appreciation and improved level of rental value growth, up by 60 basis points over the month, led principally by renewed levels of growth in the City."

Total return at an all property level remained at 0.7%, the majority of which, 0.6%, is income based.

Tily continued: "Rental value growth rose fractionally, back into positive territory for the first time since February, albeit by just four basis points, meaning capital growth was still reliant on a further reduction in yields.

"As yield compression runs its course any further uplift will become increasingly dependent on a strengthening of the underlying occupier market."

On a 12 month rolling annual basis, capital growth has slowed, achieving just 2.3%, as the main wave of the recovery came in Q4 2009 and Q1 2010. Since capital growth turned positive, 22 consecutive months of growth have seen values recover by 17.3%.

Source: IPD

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