UK commercial property markets managed another shallow month of capital growth, at 0.2%, according to September's IPD UK Monthly Index. The 12-month change in capital growth is now 14.2%.
Last month's growth concluded a fifth-consecutive quarter of capital appreciation, at 0.5%, bringing the cumulative growth since the recovery to 15.8%. The muted positive growth together with a 0.6% income return delivered a monthly total return of 0.7%. Over the quarter, the 0.5% capital growth, combined with a 1.7% income return delivered a 2.2% total return.
Income returns have resumed the role of principal component of quarterly total returns, as they were last in the first quarter of the recovery back in Q3 2009. Over the third quarter, sluggish rental declines, amounting to just 12 basis points, have been offset by a 10 basis points compression in equivalent yields.
"The market has pushed values back up to a certain level on the basis that the correction overshot; the near plateau which we now appear to have reached reflects the continuing uncertainty over property fundamentals and whether the UK economy will enter a double-dip recession," explains Ian Cullen, co-founding director at IPD.
Retail and office capital growth were level-pegging, at 0.2%, equal with the broader market, while the industrial sector delivered a second-successive month of capital depreciation, at -0.1%.
While rents continue to fall in the retail and industrial sector, the office market, has seen five consecutive months in rental growth, at a compounded 60 basis points. The modest recovery is owed the steeper rental declines which set in post Lehman's collapse, which affected the financial service industry immediately and hardest.
The IPD UK Monthly Index measures 3,631 properties worth £32.7 bln. as at September 2010.