Capital growth in the UK finally drew to a close as the continuing crisis in the euro zone, and the very real doubts about its resolution, took their toll on occupier demand and investor sentiment. Total return for November was almost entirely income driven, at 0.6%, according to the IPD UK Monthly Index.
For the first time since April rental value levels stepped down, while yield compression slipped to negligible levels.
Phil Tily, IPD UK and Ireland Managing Director said, "Central London retail and office values have been driving returns since the recovery began. However, in the last few months there have been increasing concerns over a pricing bubble in the capital, which the European economy could further exacerbate."
Central London offices saw capital growth slow to 0.4%, explained by cooling rental value movements. Outside of the center, the rest of London offices - which had for the last six months seen value increases of 1.2% as investors looked for more competitively priced assets - in October saw values and rental growth slow to zero. Outside the South-East office values slipped further into decline.
Retail values, though flat, saw a slight improvement on the -0.1% recorded in September. However the growth in central London retail values fell 80 basis points, to 0.7%. Industrial values saw a slight decline after posting positive results in September.
Year to date performance
Tily continued, "Total return for the calendar year to date (10 months) has been 7.0%, with capital return of just 1.3% over that period. Rental levels have held steady at the all property level, as office rental value growth of 1.8% was offset by rental falls of -0.7% and -0.8% in the retail and industrial sectors. If returns continued at October levels for final two months of the year, total return would amount to 8.3% and capital return would remain positive for the year, at 1.4%."
27 consecutive months non negative capital growth has seen values recover by 17.8%. On a 12-month rolling annual basis, capital growth has slowed to just 1.7%.