UK all-property total returns were the lowest ever recorded for a quarter at -12.8%, according to the latest Jones Lang LaSalle UK Property Index Q4 2008. This translated into annual total returns of -21.2% for 2008. The fall in returns was driven by the sharp correction in pricing combined with the slowdown in rental growth which saw capital values dropping by -14.3% in Q4 2008 and -26.0% annually.
The equity markets also suffered as investor confidence drained and many major economies fell into recession and recorded an annual total return of -29.9%. Gilts were the best performing asset class in 2008 with positive returns of 13.6%, reflecting the current risk-averse nature of investors.
The office and the retail sectors recorded similar drops in capital values in Q4 2008, -14.5% and -14.7% respectively. Industrial capital values fell by -13.0%. This translated into annual returns of -21.9% for retail, -21.8% for offices and -18.7% for industrial.
Mike Pendlington, director in Jones Lang LaSalle's Portfolio Valuation team said: "The Jones Lang LaSalle "style index" showed that the secondary assets (value properties) continued to struggle with annual total returns of -22.7%. Capital values for secondary assets slipped further in Q4 by -15.2%, translating into a drop of -27.8% over the twelve months to December 2008. Total returns on prime assets (growth properties) were -12.4% for Q4 and -20.3% annually. The worsening performance of all sectors and both prime and secondary assets illustrates both the scale and broad based nature of the pricing correction that occurred in Q4 2008. We would expect that prime assets will continue to out perform more secondary assets in the short term as the market continues to demand a higher premium for taking on more risky situations."