UK Commercial Property Market Trends Q2 2009
According to the IPD Index for the second quarter of this year, property values in all three major commercial property types, that is office, retail, and industrial registered quarterly declines of at least 3.9%. In particular, industrial property registered the smallest quarterly loss of 3.9% in property value. The worst performance was registered by office properties that registered an average quarterly drop in value of 4.5%. Declines in retail property values throughout the quarter averaged 4%.
The UK commercial property market continued on the downside in July, 2009 but at a considerably lower rate as property value declines decelerated considerably. In particular, in July 2009, the 3-month average decline in values for the three major property types decelerated to just 0.5% from 4% in the previous month. Office properties registered again that largest 3-month drop in value of 1.2%, while industrial properties experienced the smallest drop in value amounting to just 0.1%. Retail property values declined on average by 0.3% in the tree months to July 2009. On an annual basis, as of July 2009, the worst performer was the retail property segment, where capital values registered an average drop of 25.6%, followed by the office property segment where capital values dropped 24.8% on average. Industrial property values posted an annual decline of 20%.
It is interesting to note though that the one-month total investment return for UK commercial property turned positive in July 2009 for the first time in many months, as the monthly income return was higher than the minimal value monthly declines that took place. In particular, the monthly income return was positive at 0.7% for all three property types while property value declines for office and industrial were smaller, only 0.3% and 0.2%, respectively. Furthermore, retail property values registered actually a minimal increase of 0.1%. Since the total return is the sum of income return and the change in value, all three property types posted in July 2009 a positive total monthly return, retail the highest (0.7%) and office the lowest (0.4%). In sum, values in the commercial property market seem to continue moving downwards but the pace of decline has decelerated to very low rates suggesting that we may not be too far from bottoming out and stabilization.
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