UK Commercial Property: Rents Down for 3 Consecutive Summer Months

The London-based index firm IPD says that obvious and noticeable disproportion is merely being masked by the slight nature of the decline in rents.

Though London has generally seen positive demand from tenants – growth was actually up 0.4% in the month of August for city offices alone – the spell of decline outside the capital has gone on for far longer than three months.

Yorkshire and Humberside have seen rents fall by 4.8%, whilst in Wales, rents have fallen by 5.6% – these are the two worst affected areas in the UK over the last twelve months.

The decline of rental value outside London will only lead to ‘further doubts’ about the sustainability of these areas in regards to property, according to Phil Tily, who is the IPD Managing Director in the UK and Ireland. He added that whilst there is an interest in these cheaper regions – understandably given that some income yields in these areas are as high as 8% – they remain risky for investors given the absence of tenant and income security.

Over the last 8 months, property has underperformed against both equity and gilts. However there is one saving grace for the industry, which is that in the first 8 months of the year, income return alone was 4.5%; this return makes income return a very attractive prospect against the more troublesome equity and gilts, given its low volatility. Many are perturbed by the extremely low yields offered by gilts, as well as the continuing high volatility of the equity.

The property industry has worked extremely hard to stabilise income streams since the economic downturn, and these statistics prove that this work is, at least to a certain extent, proving sufficiently effective to be worthwhile.