Capital values continued to fall across the three main sectors in March, by -0.3%, according to the IPD UK Monthly Index. Total return fell to 0.2%, its lowest since June 2009, as across the country deteriorating values eroded positive income returns.
This is the fifth consecutive month of negative growth for UK commercial property market values, amounting to a cumulative -0.8% since November 2011.
"The retail sector recorded its worst month since May 2009, said Phil Tily, Managing Director of IPD UK and Ireland, "as poor performance and yet more administrations impacted on values. Retail total return was flat as capital declines accelerated to -0.5%."
"The continuing contraction in the sector means only Central London standard retail and London retail warehouses saw any positive growth, whilst regional shopping centers and high street retail saw the steepest falls in value."
Occupier demand and valuer sentiment
Overall rents remained flat in March (at 0%), despite declines in the retail and industrial sectors, due to further improvements in the office segment, of 0.2%, which itself was driven by occupier demand for London assets.
Notably, rental growth for more peripheral London offices increased by 0.7%, possibly the first indication of occupiers looking for better value locations outside of the City and West End.
Elsewhere, rental values remained mostly flat or negative in most segments, as austerity cuts and fears of a second recession left occupier demand lackluster.
Tily continued "Performance in the first quarter of 2012 has been, understandably, muted. Whilst Central London has continued to deliver strong returns, across the rest of the UK the wider economic situation has continued to have an adverse impact on performance levels. Occupiers and investors alike have remained cautious, leading to more subdued returns.
"Until there is some good news for the UK economy, it looks like this inertia will continue."