Uk Commercial Property Markets Sees 12 Months Of Growth

Housing projects in the UK may be losing ground as the fortunes of house builders

are losing what little they picked up before May, but the commercial property sector is seeing a full year of capital growth with commercial markets registering a 15.4% rise since August 2009. This is disclosed in the July IPD UK Monthly Index.

The July report sites a 0.2% capital growth matching the same growth figure that kick-started the markets recovery last summer. The 0.6% income stability contributed to a monthly spread of 0.8% total return.

From a sector level perspective, the capital growth comes from various starting points. The retail sector had recovered the most grounds with figures increasing a full month ahead of the main market growth with a cumulative growth of 18.6% resulting from the countrys emergence from the global economic recession over the first quarter of 2010.

On the other sectors like the office markets, capital growth was less spectacular with just 13.8% growth from its lowest point 11 months back and is in line with growth trends of the broader main market. The industrial sector also joined the recovery bandage last August registering the lowest capital appreciation of the three sectors but still substantial growth at 10.8%.

Research Manager at IPD Mark Clacy-Jones has this to say about the positive outlook for the commercial property market. For four consecutive months the pace of capital appreciation has attenuated, as yield compression remains fractional across the sectors. The pace of rental decline remains slight, at minus five basis points. So, the property picture looks stagnant at the end of the summer, but as we know this can change quickly as events over the latest cycle have proved.

It should be noted that the last time the local commercial property markets enjoyed capital growth over 12 consecutive months was in 2007 with peak growth in June of that year and registering annual growth rate of 7.1%.

Clacy Jones further observes that the commercial markets have indeed posted a recovery despite having a slower pace than previous growth months. The rebound in capital appreciate was more than double the growth rage over the previous 12 months.

This develops in stark contrast with the private housing markets which continue to lose ground despite showing initial signs of recovery following the general election. Residential projects slumped to 1.4 billion in the last three months ending July, compared with 2.5 billion in the three months just preceding the general elections, according to the Glenigan Index, the local publication tracking UKs construction industry.

James Abraham, an economist at Glenigan opined that the decline in residential sector housing highlights what he calls the fragility of the recovery. The overall UK economic outlook remains unstable and the home market could continue to suffer looking forward, Abraham noted.

The Glenigan Residential Index tracks housing projects in the 250,000 to 100 million value and notes a 22% decline compared to the same period last year. The slowdown takes a sharp contract with the construction industry boom of 9% in the 2nd quarter of the year prompted by growth in the commercial property markets.

by: Simon Drew

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