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UK commercial property markets weaker at start of 2012

It says this is the culmination of a gradual decline in market sentiment over the past six to nine months, and despite a surge in investment activity in December, a buyers market is prevalent.
Last year saw £33.4 billion worth of property exchanged, with around 35% bought by foreign capital but all three sectors, offices, retail and industrial, saw values fall by 0.2% with industrial and offices delivering better returns of 0.3% thanks to a larger income component.

Whilst most sub-sectors saw a negative step in performance this month, the once resolute central London office market saw its first decline in values after two and half years of positive growth. ‘This has caused a softening in overall office performance this month, as the counter buoyancy effect of a strong central London office market has stalled,’ says the report.

Both outer London/M25 offices and rest of UK offices saw values fall by 0.4%. The latter markets have not experienced much of an upturn in values since June 2009, with outer London M25 up just 2.6% whilst rest of UK values have fallen by 0.9% over this time period. If it was not for central London, which has seen a recovery of 47.2% in values over this time, the overall office market would easily be the worst performing sector.
Like the wider market, all retail suffered a general weakening in performance over the first month of 2012, seeing total returns of 0.2%, down from 0.4% last month, as values fell 0.2%. This deterioration came amidst the continuing cooling in investor sentiment, especially evident in shopping centre performance this month.
Shopping centres were the weakest sub-sector in January, with capital values falling by 0.5%, delivering neutral total returns. Retail warehouses maintained flat capital values, but saw monthly total returns down to 0.4% from 0.7% in December. High street shops saw some slight improvement in their performance in January, but still saw values fall by 0.1% with total returns of 0.3%. It is perceived that retail, heavily linked to the consumer economy in the UK, will continue to feel the impact of the austerity measures being implemented, as well as any crisis in consumer confidence brought about by a renewed recession in the UK.

Occupier markets didn’t deteriorate any further, but still saw rental values fall in January, down by 0.1%, and by 1.2% over the past year. Retail warehouse performance, where space is considered to be in relatively short supply saw rents stable in January, whilst shops and shopping centres saw rents fall by 0.1%.
Both occupier and investment markets showed further signs of weakening in January, as capital values fell 0.2%, delivering total returns of 0.3%. This comes after a gradual decline in performance over the past four months thanks to lingering issues surrounding the Eurozone. The industrial equivalent yield moved out to 7.9% in January.

Rental values fell by 0.3% in January, the weakest month since September 2010.