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."