Monthly capital growth hits zero – DTZ
Despite an increase in leasing activity for industrial properties during the third quarter of the year, from demand held over from the uncertain economic situation during the second quarter, DTZ says industrial rental growth as of the end of October was the lowest of the main property sectors, at less than –1% year-on-year. In an update published at the end of November, DTZ points out that the fall in manufacturing PMI to below 50 (i.e. a contracting sector) in October also indicated that the pipeline of orders – both domestic and foreign – had shrunk, “which suggests that manufacturing activity is likely to remain weak in the near future”.
The firm’s All Property monthly return for October was again broadly stable at 0.59%. Total return was mostly due to income return, while capital growth was very slightly positive but effectively zero for the month. While the offices sector remained the strongest, for the eighth month in a row (although monthly total return for offices slowed to 0.60% from 0.86%), DTZ noted that a strong London market was continuing to offset weaker markets elsewhere in the UK, and that rental growth had slowed, even in the capital. It added that the PMI survey for the services sector also suggested that activity was weakening.
Retail was again the weakest main sector, with a lower income return than for industrial property, and rental growth that lagged behind offices. DTZ noted that consumer confidence remained subdued, retail sales had declined and void rates generally remained high in weaker retail locations.
The firm highlighted investor uncertainty towards occupier markets outside the South East, and said it still expected “a tentative equilibrium” at the prime end of the UK market, particularly in this region, which investors perceived to be stronger. It expected an outward shift in secondary yield to push out the IPD All Property equivalent yield in 2012 and erode capital values, with capital growth expected to be minimal thereafter. “Annual total returns should be around 7% over several subsequent years, with the majority of the total attributable to income return,” it added.
For CBRE’s monthly index report for October, click here.
