IPD reports biggest ever quarterly fall in UK commercial property

The value of investments in UK commercial property fell 8.7% over the fourth quarter of 2007 compared with the year-earlier period, IPD said in a new UK Quarterly Property Index report issued on Thursday. Total returns on property investments in the country slumped to -7.6%, the biggest fall in the history of the index and an unprecedented reversal that has dragged the 12-month total return to -4.4%, itself the lowest calendar year return since 1990.

The turnaround was driven by a sudden collapse in investor confidence, triggered by pervasive financial sector uncertainty. The nervous sentiment, which set in last summer, ended an unprecedented run of 22 consecutive quarters of market growth, IPD said. The issues of greatest significance to investors are now probably all linked to the underlying economic fundamentals which will determine the strength of occupier markets over the next two years. Although rental value growth remained positive, at 0.8% in the fourth quarter, this was also the poorest result of the year, IPD noted.

'The question focusing the minds of UK property market analysts concerns the links between an unavoidable market correction and a potentially much longer period of negative or zero returns. This could follow if the failure of investor confidence spreads into the consumption and employment markets which underpin the demand for commercial property', said Ian Cullen, co-founding director of IPD.

The IPD UK Quarterly Property Index measures returns on direct investment in UK commercial property. It shows total return on capital employed in market standing investments but excludes any properties bought, sold, under development, or subject to major refurbishment in the course of the month.