October marked the twelfth straight month that UK commercial property values fell due the country’s sluggish economy, according to figures released by Investment Property Databank (IPD).
The average value of warehouses, offices and stores fell by 0.3 per cent in September. The numbers for total return, which includes the changes in values and rental income, came in at 0.3 per cent in October. This figure was up from 0.2 per cent in September.
The managing director at IPD, Phil Tily, commented that the 12 months of falling capital values was a “rather unfortunate milestone for the UK property sector.”
The improvement in underlying performance in the past few months may point to the possibility the market may have bottomed out.
Any return on investments has been generated by income. Rental values for the UK as a whole show total returns of 4.3 per cent to June of this year, according to Jones Lang LaSalle’s UK index. (In June of 2011, returns were 9.3 per cent.)
Even though commercial property values have fallen significantly in the past five years, leading economist Adam Chester points out that this sector of the market “offers exceptionally good value at the moment.” He points out the decline in capital values is starting to slow, which is good news for investors.
Mr. Chester goes on to state that while rents are declining, the pace of the decline is slowing. The current downturn the UK is experiencing is a protracted one, and it will take several years for the country to recover to the levels of output investors were recouping in 2008.
Confidence is the main factor holding back the UK’s economic recovery, according to Chester. Lloyds Banking Group predicts that GDP will grow by just 1.2 percent in 2013.
