UK property returns 14.5% over 2010, says IPD

UK commercial property delivered a 14.5% total return last year - the strongest return for four years, according to the IPD UK Monthly Index. In 2009, the total return was 2.2%.

The first full account of 2010 performance reveals positive capital growth continued unbroken throughout the year with the final month returning a modest improvement, at 0.3%. This contributed to an annual capital growth figure of 6.9%, compared to -5.6% in 2009, while last year's income returns were down from the 8.2% in 2009 to 7.1%.

The story behind the performance of the UK commercial property market in 2010 was one of decelerating capital appreciation over the first half of the year, before rates of growth weakened to a near standstill over the final six months.

Yield compression was the principal driver of capital growth, with initial yields falling 50 basis points to 6.5% by June, after which, yields shortened by 10 basis points for the final six months of the year. Over the full year, rental value growth fell by a modest 0.8%.

'The rebound in capital values, which emerged so aggressively at the back end of 2009, had virtually run its course by the mid way point of 2010,' said Phil Tily, UK and Ireland managing director at IPD.