Capital growth returns on Lehman anniversary: IPD

The anniversary this week of the collapse of investment bank Lehman Brothers was marked by the first monthly UK commercial property capital growth in 26 months. The IPD UK Monthly Index recorded an increase of 0.2% in August.

A continued easing in negative rental value growth, which improved by 10 basis points to -0.48% over August, together with a second consecutive positive yield impact, at +0.64%, combined to bring the UK commercial property market back to positive growth for the first time since June 2007. The consecutive 25-month peak-to-trough capital decline ended at -44.2%. This compares with the 43-month nominal decline of -27.1% between October 1989 and May 1993.

All property initial yields have contracted to 7.86%, following compression at both Retail and Industrial sector level to 7.53% and 8.18%, respectively.

Over the 12 months to the end of August 2009, which covers the bulk of the period since Lehman Brothers' collapse, bonds have been the most resilient asset class, returning 13.3%, as measured by the FT Gilts 5 -15 Years Index. Over the same period equity markets have delivered a -8.2% total return, according to the FTSE All Share Index, while commercial property is still reporting a -22.6% 12-month return.