19.02.10

By James Whitmore

Capital growth eased to 1% in January, down from the record 3% rise in December, shows Investment Property Databank’s latest UK Monthly Index

The value rise was driven by yield compression, albeit at a slower rate than previously. It was 1.2% in January, compared with 3.5% in December. The all-property initial yield now stands at 7%. By sector, the strongest value gain was in offices, up 1.1%.

A 61 basis point income return contributed to a 1.6% total return in January.

“The pattern of record rapid capital growth over the final quarter of last year, followed by January’s more muted growth, is the mirror opposite of the trend one year ago,” explained Malcolm Hunt, head of UK client services at IPD.

“At the end of 2008, the UK commercial property market suffered the worst quarterly capital depreciation on record, followed by a noted ease-off in the first month of the new year.”

City and West End offices resumed rental growth in January, at 0.2% and 0.3% respectively.

The recovery in central London offices is fuelled by its heightened sensitivity to economic sentiment.

The sector fell more sharply when markets were under pressure but recovered more rapidly as sentiment improved. It has benefited considerably from overseas investors, attracted by improving yields and the sterling depreciation.

Rental value growth in the retail and industrial sectors was -0.3% and -0.2% respectively.

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Source: Property Week (www.propertyweek.co.uk)