British commercial property values saw their smallest price drop in two years, although falling rents will continue to put pressure on prices, the Investment Property Databank (IPD) said on Friday.
The benchmark IPD index, used as the basis for the UK property derivatives market, registered a 0.13 per cent fall in July, bringing the market’s peak-to-trough decline to 44.2 per cent.
IPD said initial yields for all UK commercial properties contracted to 7.87 per cent, after yields for retail malls and offices dropped to 7.59 per cent and 8.09 per cent, respectively, helped by a slowing in the pace of decline for both prices and rents.
Real estate broker CB Richard Ellis, a contributor to the UK index, had reported last week that prices rose 0.2 per cent in July.
The improving data raised hopes of an imminent recovery in Britain’s battered property market, although some experts warn that a sustained revival could still be some way off due to lingering economic weakness in the UK.
‘Yield compression and a deceleration in rental pressure is indeed a fillip for the commercial property market.
However, we should be careful in reading too much into one month’s numbers,’ IPD Research Director Malcolm Frodsham said.
‘We may have to wait a long time before rental growth actually turns positive and this will continue to put downward pressure on values,’ he said.
IPD’s data showed that average rents fell by 0.58 per cent in July, as demand for space in office, retail and industrial properties remained depressed by the economic recession.
Retail properties showed a fractional improvement in prices, rising 0.05 per cent in July, while offices and industrial properties fell 0.29 per cent and 0.24 per cent respectively.
Source: Business Times, 14 Aug 2009