Monthly commercial property returns increased to 0.9 per cent in August, and reached their highest levels since March 2011, as positive signs in the economy continue to filter down to the market.
According to the IPD UK Monthly Index, returns were positively influenced by the 0.4 per cent increase in property values, which have continued to rise by a cumulative 0.8 per cent over the past four months. Income returns have held steady at 0.6 per cent over the same period.
All three major sectors saw rising total returns, with the retail sector growing for the first time since October 2011.
Retail property values increased slightly by 0.1 per cent throughout the month. Though growth was slight, it stops the 21-month cumulative decline of 7.1 per cent and led to a total return of 0.7 per cent.
Growth was not restricted solely to the London area. Shops and warehouses around the United Kingdom saw stable or increased property values during the period. Shopping centres did not fare as well, though, and continued to see falling values.
Offices returned 1.1 per cent overall, and capital values rose by 0.6 per cent. Returns in the industrial sector were at the highest level in over three years, at 1.2 per cent.
Rental growth was uneven across the country. For all UK property, rents increased by 0.1 per cent. Offices were up by 0.3 per cent and industrial units rose by 0.1 per cent. In the retail sector, rents declined slightly (0.1 per cent) and demand in local occupier markets was best described as “hit-and miss.”
Phil Tily, executive director & head of UK and Ireland at IPD, observed recently that in the last 12 months that economic growth has returned and consumer and business confidence has increased.
He indicated that as the growth moves further out of London, income and value add opportunities in the regions “where income yields often exceed 8 per cent” will begin to bring in investors who are prepared to take a higher level of risk.
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