IPD: UK values fell by 2% in the first half of 2012 (UK)

Property values fell by -2.0% in the first six months of 2012, as austerity measures at home and political wrangling in the Eurozone continued to stifle growth outside of London.

Total return in June remained positive, at 0.1%, but capital values fell by a further -0.5%, according to the IPD UK Monthly Property Index.

Rental growth remained flat for the month, as occupier demand, depressed by the government's austerity cuts, remained lackluster. In the last six months average rents fell by only -0.1% at the all property level, but this was buoyed by relatively strong growth in the office sector. The hard hit retail sector, in comparison, saw rents fall by a further -0.4%.

Phil Tily, Managing Director of IPD UK and Ireland said, "It has been a difficult six months for the UK real estate industry, with the UK falling back into a mild recession, and values continuing to fall outside of the Capital. Unfortunately, for as long as the wider economic situation remains difficult, the property industry will have to wait a little longer before the recovery gets back underway."

Key sector performance over the first six months of 2012:
• High street retail values outside of the South East have fallen -5.2%.
• Regional shopping center values have fallen -6.3%.
• Offices outside of the South East have lost -4.8% of their value.
• Central London retail has seen growth of 2%
• Central London offices recorded growth of 1.8%.

Regional yields
Despite UK regional values declining, it is worth noting the yield premium offered on assets outside of London. Offices outside of the south east have an average initial yield of 7.5 percent, whilst industrial units in delivered 7.6% – a considerable premium on the 4.5% available in central London, or the 2.3% of UK gilts.

Tily continued, "There are still opportunities in the market, and property does still have a lot to offer investors – especially in comparison to the volatility of equities, and the low yields of gilts – and in a market of flat or negative growth, the income offered on property is its greatest asset.

"Heavily discounted assets can potentially offer significant income premiums to investors priced out of London – if they are prudent with their asset selection, and willing to invest heavily in active management."

Source: IPD

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