EUROPE - Fears of a UK recession have driven the first decline in capital values for UK commercial property - including in the City - for more than two years.

November data released by IPD this week showed negative retail returns leading the nationwide decline, while income accounted for a 0.5% total return.

Capital growth accounted for just 1.3% of a total return of 7.6% for the year to date.

IPD blamed the figures on economic growth forecasts, failure to resolve the euro-zone crisis, high unemployment and 5% inflation.

It said uncertainty about whether the UK would be able to avoid recession next year was already beginning to eat into property values.

The data suggest the UK recovery - which saw 27 months of growth amounting to 17.8% - is at an end.

IPD UK and Ireland client services director Malcolm Hunt told IP Real Estate: "In the past few years, there has been an appreciation in capital values despite poor economic news. That represented a recovery.

"Now investors believe repricing has run its course and the recovery phase is probably over. Depending who you ask, we're roughly at fair pricing."

Moribund occupier demand outside the capital over a longer period had contrasted with buoyant returns in the City and West End.

Now City office values have fallen to 0.1%, leaving the West End to hold up the London market.

"Although London has effectively been a safe haven for both domestic and overseas investors, it seems now domestic investors have been priced out of the City market," said Hunt.

In contrast, the West End is the exception to the rest of the capital because it is a tighter, smaller market with less supply.

It returned 0.7% in November, compared with 8.2% for the year as a whole, driven by rental growth.

In separate news, Jones Lang LaSalle on Thursday suggested technology and media companies were abandoning the West End for other parts of the capital.

Preliminary fourth-quarter data analysed by the firm suggest sector-specific firms were looking to Midtown, Farringdon and the Southbank to avoid West End prime rents.

In the meantime, the firm anticipates City rents to remain stable into 2012, with growth toward the end of the year.

The City fringe would also experience rental growth as a result of demand from the West End migration, the firm said.

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