UK capital growth reaches 15-year high in November, says IPD

UK commercial property values rose by the largest monthly figure in 15 years, according to November's IPD UK Monthly Index. Capital growth was 2.4% last month, bringing the compounded growth since the market began ascending in August to 5.4%. Year-to-date capital growth is now -8.4%, while steady income returns leave the total return for the 11 months of 2009 at -1.4%.

The dramatic reversal of fortunes in the UK commercial property markets has been predicated on softening rental pressure and returning yield compression. Rental growth has fallen from the deepest monthly negative figure in IPD's 22-year history of -1.3% in March this year to -0.3% in November - the shallowest decline since October 2008. Concurrently, five consecutive months of yield compression has seen all property yields end November at 7.3%. Yield impact, which measures the influence of yield movement on capital values, was 2.8% in November – the largest monthly figure in 15 years.

Capital growth at the sector level has been significant. In Retail, November’s 2.8% growth was the second largest in IPD history, only surpassed in December 1993. The Industrial sectors’ 2.1% growth is the largest seen since March 1994, while in the historically more volatile Office sector, last month’s 1.8% capital growth was the largest gain since the height of the last property bull run in December 2006.

Malcolm Hunt, head of UK Client Services at IPD, said: 'The recovery in UK commercial property markets over the last four months has gathered enough momentum to make a positive annual return for 2009 achievable. This time last year, the Monthly Index showed we were on the brink of surpassing the worst annual return since 1990 – at that time such a rapid reversal of fortunes would have been considered far fetched.

'It is the awareness of this uncertainty which still pervades markets today which should keep us mindful of over-optimism. The recent events in the Middle East are an ample reminder of the fragility of confidence and how we must be vigilant and not misprice property risk. More than anything, recent years have served to reinforce the need for property investors to understand their risks.'