UK commercial property capital values fall 4.5% in Q1

The capital value of UK commercial property fell by 4.5% in the first quarter of 2008 and is now 14.9% lower than this time last year, according to the April index from CB Richard Ellis

Despite the decline, CBRE noted the fall in capital values had moderated for the third consecutive month in March, falling 1.2% in the month, as its All Property Equivalent yield recorded the smallest outshift since August.

At the same time, CBRE said rental values remained relatively subdued, with growth of just 0.6% in the first quarter, lower than any quarter in 2007. With a total return of -0.7% in the month and 3.2% in the first quarter of 2008, CBRE said the commercial property correction has slowed from the rapid repricing that occurred in the last quarter of 2007 although the three-month annualised Q1 capital value fall is still 12.0%.

In line with a deteriorating economic environment, CBRE said Central London offices saw no rental growth in March and capital value corrections accelerated to –1.4% from –0.5% in February. Industrials were by far the weakest sector in March and the first quarter as a whole. Total returns for retail, offices and industrials in the first quarter were respectively –3.3%, -2.5% and –4.3%.

CBRE also noted property continued to be the poorest performing asset class annually with a return of –10.4%, compared to –7.7% for the FTSE All Share index and 9.2% for government bonds.