New research shows commercial property values fell 0.9 per cent in June – nearly half the decline recorded the month before.
The entire British market has now fallen by 44.1 per cent since June 2007, according to new data, as the real estate slump enters its third year.
The research, from Investment Property Databank (IPD), is used as the basis for the UK’s property derivatives market, had registered a 1.6 percent drop for May.
Britain’s debt-fuelled property boom came to an abrupt end two years ago in the wake of the US sub-prime mortgage crisis, which exposed billions of dollars of real estate liabilities at the world’s biggest banks.
The data confirmed the correction in UK real estate values was starting to slow.
In the 12 months to the end of June, commercial property capital values fell 30.8 per cent.
“British commercial property markets have marked the second anniversary of consecutive monthly declines in capital values with the shallowest fall since August 2007,” a spokesman for IPD said.
Capital value falls at sector level were most diluted in the retail sector, down 0.7 per cent. In the industrial and office sectors, capital values fell, respectively, 0.8 per cent and 1.2 per cent, the data showed.
IPD director Ian Cullen said June marked the first month in 24 in which falling occupier demand, rather than investor diffidence, played the lead role in driving capital decline.
Income returns, which rise if capital values fall faster than rental income, rose again marginally to 0.69 per cent.
“Over this two-year period, the nature of this property recession has shifted from a yield-driven downturn to a deepening negative rental cycle, particularly over the six months to the end of June 2009,” Mr Cullen explained in a statement.
“Rising vacancy rates and over-renting further underpin the shift in the phase of this property recession,” he said, adding that on an all property basis vacancy rates had risen from 8.2 per cent to 12.1 per cent over the two-year period.
Over-renting – the proportion of income from properties paying rent above market value – had jumped from 2.5 per cent to 6.7 per cent over the same period, Mr Cullen said.
Comparing the performance of UK commercial property with other asset classes over the two years to the end of June showed it had returned -36.7 per cent, against the FTSE All Share’s -30.8 per cent and bond’s 26.3 per cent.
On July 7, CB Richard Ellis data showed British commercial property prices fell 0.8 per cent in June, taking the market’s total drop to 44 per cent since its mid-2007 peak and suggesting a turning point may be near.