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IPD: Rental values fall over quarter

By Paul Norman - Friday, September 14, 2012 15:12

UK rental values have fallen for a whole quarter, according to IPD’s latest figures.

Rents fell by -0.1% in August, and have now fallen cumulatively by -0.2% over the last three months.

Between May 2008 and August 2010 they fell by 11% per cent at the all property level, and since then have largely stagnated.

Though the declines are slight they mask considerable disparity across the UK.

IPD said that while London has continued to see positive demand from occupiers, with rental growth of 0.4% for City offices in August alone, outside the capital rents have been in decline for far longer than three months.

Over the last year, the worst affected sectors, retail rents in Wales and Yorkshire & Humberside, have seen rents declines of -5.6 and -4.8% respectively.

Rental declines, along with yield expansion, contributed to a further capital fall of -0.3% in August, though this was offset by an income return of 0.6%, which led to a total return of 0.2%, according to the IPD UK Monthly Property Index.

Phil Tily, managing director for IPD UK and Ireland, explained: “Heavy declines in rental values outside of London will lead to further doubts about the sustainability of UK regional assets.

“Though interest remains for heavily discounted assets in the UK’s regions, with income yields sometimes in excess of 8%, without tenant and income security they remain a risky prospect for investors.

“Until occupier demand starts to stabilise outside of London, which will inevitably be reliant on the UK coming back out of recession, and a degree of consumer confidence returning to the market, it is going to be difficult to sustain the high initial income over the long term.”

pnorman@costar.co.uk