UK commercial property values fall further, says IPD (UK)

The slight decrease in the pace of capital decline in the UK commercial property market was sustained in February, with values falling by a further 3.08%, according to the IPD UK Monthly Index for February.

The latest monthly fall brings the total peak-to-trough decline in commercial property prices, since June 2007, to -39.5%. For the third consecutive month, capital value falls in the Retail sector led the way, at -3.35%, followed by Offices and Industrials at -3.03% and -2.53%, respectively. Income returns remained level with January, at 0.61%, itself a high since October 2002, contributing to total returns in February over the whole Index of -2.47%.

Investment returns for UK commercial property still compare favourably to those from equities, which were -6.52%, as measured by the FTSE All Share Index, and also outperformed bonds, which returned -2.80%, according to the FT Gilts 5 - 15 Years Index.

Despite robust income returns, rental levels continued to slide through February, falling by a further 0.93% - the sharpest single month movement so far in this recession. The primary driver was further rental weakening in the Office sector, which fell by 1.74% month-on-month, followed by Retails, dropping 55 basis points, and then Industrials, by 45 basis points.

The greatest deterioration in vacancy rates, measured as a rental value percentage of the overall income in the Monthly Index databank, was in industrial property, which increased by one percentage point to 15.5% in February, pushing up overall levels to 11.2% - the highest figure ever recorded and seven percentage points above the minimum recorded, at 4.2%, in March 1997.

Ian Cullen, co-founding director at IPD, said: "With only the slightest attenuation in the pace of capital value falls, the re-pricing cycle continues to run its course, now close to a 40% overall write-down. Perthaps the most notable feature of the February results, however, was the further weakening in Office rental values, recording over three times the drop of the other major sectors."

Source: IPD

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