UK commercial property values fell for the seventh consecutive month in May, by -0.5%, their steepest monthly drop since values started to decline in November last year. Total return slid to 0.0%, as income return, steady at 0.5%, was no longer sufficient to offset the negative capital movements, according to the IPD UK Monthly Property Index.
Confidence in the UK property sector fell amid concerns surrounding the Greek elections, but the lower volatility of the asset class, when compared against variations in returns in the equity market, has acted in its favor. Equities, which had seen a strong start to the year, saw returns plummet to -7.3% in May.
Phil Tily, Managing Director of IPD UK and Ireland said, "Total return has fallen to its lowest level since June 2009, which is bleak reading for an industry still struggling with re-financing."
"However, it's not all doom and gloom in the UK market. Despite the uncertainty caused by wider economic factors, or perhaps because of it, returns in London remain resilient. Values in the City and West End office markets grew by 0.9%, and 0.3% respectively, and in Central London retails by 0.9%.
"The fact that London can continue to grow, even in such difficult times, lends cheer to an otherwise challenged marketplace."
At the sector level, retail property saw the largest declines in value, of -0.7%, whilst office and industrial units fell by -0.3% each. Within the struggling retail sector, shopping centers suffered particularly, seeing falls in value of -1.2% in London and the South East, and -1.3% in the rest of the UK.
Rental growth, at the all property level, remained flat.
Tily concluded, "It remains to be seen whether the latest Greek election results will have a stabilizing effect on the Euro-zone, or whether they will prolong the uncertainty."
Values have now fallen by a cumulative -1.6% in the last seven months, and sit -35.3% from their June 2007 levels.