Rental values for UK commercial properties have fallen for three months due to falling occupier demand. Rents were down by -0.1% in August and have fallen by -0.2% over the quarter.
According to London property index firm IPD, there is a considerable disparity in various centres across the United Kingdom. In London, the news for landlords has been positive, with rental growth of 0.4 per cent for City offices in August alone. Outside the city, rents have been in decline for longer than the past 90 days.
In the past 12 months, retail spaces in Wales and Yorkshire & Humberside have been the worst affected sectors. Declines have been recorded of -5.6 and -4.8 per cent, respectively. The combination of rental declines and yield expansion added up to a capital fall of -0.3 per cent in August. This was offset by an income return of 0.6 per cent, adding up to a total return of 0.2 per cent, according to the IPD UK Monthly Property Index.
In the eight months of 2012, commercial building’s has underperformed gilts and equities. It has returned 1.6 per cent, as opposed to 7.0 per cent from equities and 5.2 per cent from gilts.
Income return alone was 4.5 per cent for the same period. The low volatility of the income offered on UK commercial property means it is still an attractive option for investors who are looking for something more stable than equities and gilts. In the years since the global economic downturn, the UK property industry has made progress in stabilising income streams for investors.
Occupier demand outside of London must stabilise before investors are going to see high income from their investments over the long term. As the UK comes out of the recession, increased consumer confidence in the market will help to drive demand for commercial space.
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