UK commercial rally running out of steam, says IPD

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  • UK commercial rally running out of steam, says IPD

UK - Investment Property Databank (IPD) has warned that the rally in the UK commercial real estate market is all but over, with the third quarter seeing the shallowest period of capital growth in 2010.

Phil Tily, UK managing director at IPD, said: "The property rebound appears to have now run its course - with all key sets of growth measures now trending to zero."
That said, rental value growth finally crossed into positive territory (0.1%), bringing to a close a nine-quarter stretch during which rental values fell by more than 10%.

According to the IPD Quarterly index, UK commercial property delivered a fifth consecutive quarter of increasing capital values, at 0.7%, which, combined with a 1.5% income return, delivered a 2.3% total return. The cumulative rebound in property prices now stands at 17.4%.

Tily said there were positive returns across all segments, but there was also a noticeable divergence in fortunes across different parts of the market.

"We have reached a point of inflection," he added. "Everyone is trying to second guess what's ahead: is it teetering on the brink of decline, or is the market well positioned to be able to respond to any improvement in the underlying economy?

"Surveys suggest a degree of confidence among investors in the performance of their own portfolios - arguably reflecting the fact strong asset management will still be able to yield results even in the face of somewhat fragile market fundamentals."

Most markets have seen rental improvement, led by central London, where offices in particular delivered a 1.2% rental value growth.

Tily said this was "buoyed along by an upsurge in demand" and the fact that supply, particularly at the prime end, remained "very tight".

He added: "London is clearly running way ahead of the rest of the country."

Rents among industrial and retails are still in decline, with quarterly falls of 0.2% in the case of the former and 0.4% in respect of standard shops.

Tily said consumer-facing sectors were arguably more affected by tax rises and job cuts.
 

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