UK commercial property capital value falls ease in January

The pace of UK commercial property capital value falls eased in January to a decline of -3.01%, according to the IPD UK Monthly Index. After three successive record monthly capital value declines over the final quarter of last year, peaking at -5.84% in the month of December, the tempered decline is an encouraging start to 2009, IPD said.

Total returns for the first month of the New Year was also consequently much improved, at -2.40% - the best monthly return since September 2008. UK commercial property outperformed both equities and bonds over January, which yield -5.83% and -3.31%, according to the FTSE All Share Index and the FT Gilts 5 - 15 Years Index respectively.

Sector capital writedowns eased across the board, with Retail, Offices and Industrials falling -3.20%, -3.06% and -2.47%, respectively. Supporting the improved total returns for the month was modest improvement in income returns across all three sectors. All Property income return for January was 0.61% - a level not seen since December 2002. In contrast, rental levels slightly deteriorated month-on-month to end January, falling overall by -0.79%. The greatest drop over the month was in Retail, which slid by -0.56%, while Offices remain significantly the weakest sector having fallen by -1.44% in January.

Yields continued to push out across the three sectors, led by Industrials which now stand at 9.52%, followed by Offices at 8.75% and Retail at 8.42% on a true equivalent yield basis. Vacancy rates edged higher, with vacant rental value as a percentage of total income recording a new monthly high of 10.9%, driven upwards by increased vacancies in the Retail sector.

Ian Cullen, co-founding director at IPD, said: 'The two wave pattern to the cycle shifted noticeably in January, with the pressure on yields starting to relax whilst that upon rents spreading clearly into many parts of the Rental and Office sectors.'