IPD has announced results of the IPD UK Quarterly Property Index for the three months to 30th June, 2008. The All Property total return for the period was -2.7%, better than the previous three-month period when all property returns were -3.3%. Rental growth dropped to 0.0% at the All Property level and turned negative for Offices, which fell to -0.4% in Q2 from 1.0% in the three months to March 31st.
The annualized All Property total return for the 12-months to June 30th was -14.0%. However, a decline in capital values of -4.0% in Q2 2008 at the All Property level was slightly better than the -4.6% drop in the preceding quarter, and noticeably better than the -8.6% drop in the three months to the end of 2007.
The issue of greatest significance to investors remains the underlying economic fundamentals which will determine the strength of the occupier market over the coming quarters, and thus the path of future rental growth. The real economy is clearly feeling the effects of the credit crunch, as is indicated by the decelerating trend in rental value growth since December 2006. And so real estate investors will be focusing their main attention upon the future direction of this rental value trend.
Malcolm Frodsham Research Director of IPD, commented: "The fall in commercial property values has continued into the second quarter, pushing initial yields up from 4.5% to 5.6%. That's still only half way back up towards the initial yield of 6.7% which prevailed at the start of 2003 when the upswing in values began."
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