UK commercial property recorded a negative total return in the third quarter, according to MSCI.

The return takes the 12-month total return to September to 4.2%, a low not seen since March 2013.

MSCI’s IPD UK Quarterly Property Index measured the performance of 220 funds holding 9,400 assets, with a total capital value of just under £150bn (€167bn) as at the end of September.

Hélène Demay, vice-president at MSCI, said: “The negative quarterly total return does not come as a surprise, as external shocks are often followed by a market adjustment.

“What will be much more interesting to see is how the market behaves across the next few quarters.”

The index’s first quarterly decline recorded since June 2009 follows the decision of the UK to leave the European Union.

“The slowdown in the UK market had already started before the EU referendum took place,” Demay said. 

Although the EU referendum result was announced on 24 June, MSCI said second-quarter results were unaffected by the vote, as it was too close to the end of the quarter to affect valuations.

The quarterly decline was driven by a 2.4% fall in capital values, itself driven by a yield impact of -2.8%.

Rental growth was still positive at 0.3%, although it moderated since the end of last year.

Income return remained the same at 1.2%.

Over the last three months, the UK property market underperformed equities (7%) and property equities (5.5%), while outperforming bonds (1.9%).

A period of strong growth in 2014-15, largely driven by yield compression, had already started to slow, she said, with rental values taking over from yield impact as the main engine for capital growth.

“What’s interesting to see is that rental value growth was still positive (+0.3%) in Q3, even if moderating from Q1 and Q2,” Demay said.