IPD: property returns slump to June 2009 level

UK commercial property values in May suffered their largest monthly drop since the eurozone debt crisis started to bite last autumn.

IPD’s latest UK Monthly Property Index shows that values dropped for the seventh consecutive month in May, by 0.5%. Total return slid to 0%, as income return, steady at 0.5%, was no longer sufficient to offset the negative capital movement.

Confidence in the UK property sector fell amidst concerns surrounding the Greek elections, but has in fact outperformed the equities market, which produced returns of -7.3% in May.

Phil Tily, managing director of IPD UK & Ireland said, “Total return has fallen to its lowest level since June 2009, which is bleak reading for an industry still struggling with re-financing.”

“However, it’s not all doom and gloom in the UK market. Despite the uncertainty caused by wider economic factors, or perhaps because of it, returns in London remain resilient. Values in the City and West End office markets grew by 0.9%, and 0.3% respectively, and in central London retails by 0.9%.

“The fact that London can continue to grow, even in such difficult times, lends cheer to an otherwise challenged marketplace.”

At the sector level, retail property saw the largest declines in value, of 0.7%, while office and industrial units fell by 0.3% each. Within the struggling retail sector, shopping centres suffered particularly, seeing falls in value of 1.2% in London and the south east, and 1.3% in the rest of the UK.

Rental growth, at the all property level, remained flat.

Values have now fallen by a cumulative 1.6% in the last seven months, and sit -35.3% from their June 2007 levels.

The IPD UK Monthly Property Index is based on 3,602 properties, valued at £33.4bn at the end of May.