British commercial property rental values have been trending downwards for 14 consecutive months on a rolling three-month basis, according to April's IPD UK Monthly Index, ending April 2009 at -3.21% the lowest rental value equivalent figure since December 1992.
Three-month measures for rental value growth which is a key indicator for landlords with properties either vacant, approaching expiry or nearing a break clause are used to help smooth out monthly fluctuations. Set in the context of average unexpired lease terms, which have fallen by 12 months in the year to end of Q1 2009, according to the IPD Rental Information Service, continuing falls in rental values benefit occupiers while diminishing future income prospects for investors.
For the month of April, the pace of capital depreciation has continued to decline, to -2.31%, causing a marginal increase in income returns, now at 0.67%, contributing to a monthly total return of -1.63%. April's monthly capital decline is the shallowest seen since August 2008, before the collapse of investment bank Lehman Brothers.
The moderation in pressures on commercial property capital values is also evident in a reduction in the month-on-month yield impact, now at -1.74%. This has resulted in another marginal 0.18% increase in all property initial yields, to 7.84%. Movements in capital values at the sector level are trending downwards, with the steepest monthly falls still Retail, at 2.61%, followed by Offices and Industrial, at 2.27% and -1.79%, respectively.
Malcolm Frodsham, Research Director at IPD said: "Rental values haven't fallen this rapidly for more than 16 years. The demand shock has been so severe, given the breadth of industries affected by the downturn and the scale of companies downsizing, that office relocations and expansions have been off the agenda. Given the pace of rental adjustment to date, it suggests that when the wider economy does recover that the UK commercial property market will be well placed to recover from a low base."