IPD reports flat UK growth as eurozone worries continue

The IPD this week noted the cooling in rental values for available office space and retail property in Central London during October, saying that concerns have been increasing in recent months about a “pricing bubble” in the capital. The ongoing turmoil in eurozone economies could intensify these worries, it added, as it reported its Monthly Index figures for October.

Total returns for UK property were almost entirely income-driven in October at 0.6%, the IPD said. Capital growth “finally drew to a close” last month, it said, as the continued crisis in Europe – and the apparent lack of an effective plan to resolve it – took its toll on occupier demand and investor sentiment.

Rental value levels declined in October, for the first time since April, while yield compression “slipped to negligible levels,” the IPD noted. Cooling rental value movements for Central London offices saw capital growth slow down to 0.4% last month, while the market for office space in the rest of London saw values and rental growth slow to zero. The outer London market had previously been increasing in value for the past six months as investors sought more competitively priced assets, the IPD noted. Outside the South East of England, office values “slipped further into decline”, it added.

There was a slight improvement overall on the 0.1% decline in retail values seen in September – for October, retail values were flat. But the growth in Central London retail values fell 80bp to 0.7%. After positive results in September, values for industrial property saw a slight decline.

Phil Tily, IPD UK and Ireland managing director, noted that total returns for the year to date were 7.0% with capital returns of just 1.3% during the 10-month period. “Rental levels have held steady at the all property level, as office rental value growth of 1.8% was offset by rental falls of -0.7% and -0.8% in the retail and industrial sectors,” he said. If returns continued at October levels for the final two months of the year, total returns would amount to 8.3% and capital returns would remain positive for the year, at 1.4%, he added.