Property values fell by two per cent in the first six months of 2012, as austerity measures at home and political wrangling in the Euro zone continued to stifle growth outside of London.
Total return in June remained positive, at 0.1 per cent, but capital values fell by a further 0.5 per cent, according to the IPD UK Monthly Property Index.
Rental growth remained flat for the month, as occupier demand, depressed by the government’s austerity cuts, remained lacklustre. In the last six months average rents fell by only 0.1 per cent at the all property level, but this was buoyed by relatively strong growth in the office sector. The hard hit retail sector, in comparison, saw rents fall by a further 0.4 per cent.
Phil Tily, managing director of IPD UK and Ireland, said:
“It has been a difficult six months for the UK real estate industry, with the UK falling back into a mild recession, and values continuing to fall outside of the capital. Unfortunately, for as long as the wider economic situation remains difficult, the property industry will have to wait a little longer before the recovery gets back underway.”
Despite UK regional values declining, offices outside of the south east have an average initial yield of 7.5 per cent, whilst industrial units in delivered 7.6 per cent – a considerable premium on the 4.5 per cent available in central London, or the 2.3 per cent of UK gilts.
“There are still opportunities in the market, and property does still have a lot to offer investors – especially in comparison to the volatility of equities, and the low yields of gilts – and in a market of flat or negative growth, the income offered on property is its greatest asset,” says Tily.
“Heavily discounted assets can potentially offer significant income premiums to investors priced out of London – if they are prudent with their asset selection, and willing to invest heavily in active management.”