UK capital growth fell in the second quarter of 2011 to 0.4%, the lowest rate of growth since Q2 2009, according to the IPD UK Monthly Index. Capital growth for June was 0.2%.
Malcolm Hunt, UK and Ireland Client Services Director, said: "While capital growth has been positive for the 23rd consecutive month, it is fractional, and likely to remain under pressure until the secondary market improves.
"Yield compression has continued at a trickle, and rents have failed to pick up the slack, remaining flat for the quarter. Continuing wider macro-economic turmoil, and the uncertainty surrounding the secondary market, has meant that outside of London growth remains largely flat or negative, as investors and occupiers continue to shy away from risk."
Sector level rental performance remains unconvincing. Rents in both the retail and industrial sectors continued to decline, recording -0.1% and -0.2% for the quarter respectively. Rents in the office sector remained positive, at 0.4%, though outside of London fell away.
Hunt continued, "Total return, 0.7% for the month, and 2.1% for the quarter, has been driven almost entirely by income return, which has remained around 0.6% month on month.
"The importance of active management in the current market cannot be ignored, the recent spate of retail administrations being a case in point. The latest administrations could wipe up to £393 million from rent payments to UK landlords over the course of their leases, though of course actual losses are being mitigated by pro-active asset management."
Since capital growth turned positive, 23 consecutive months of growth have seen values recover by 17.3%. On a 12-month rolling annual basis, capital growth has slowed to just 2.0%.