The latest CB Richard Ellis monthly index recording a total return of 1.2% and capital growth of 0.7%.
Central London Offices continued to outperform the wider property market in May with total returns of 1.8% and annual returns of 13.5%. This reflects the preference of investors for stock in the capital, the report says.
Industrial sector performance was the least impressive with total returns of just 0.9% backed by marginal capital growth of 0.3%. The sector has seen the least vigorous recovery with capital growth of 10.9% since the middle of 2009.
The report also shows that downward yield movements continued to slow in May to 6.9%. Since the trough in June 2009 values have increased by 17.1%.
Analysts say that rental fragilities and declines are still present across most property sectors with Central London the only exception. All property rents fell by 0.1% in May and by 0.8% since the start of 2010.
‘These figures represent the cooling investment sentiment and the slowly improving occupier markets,’ the report adds.
Meanwhile consultants Savills are warning that volatility is returning to the property lending market. William Newsom, Savills head of valuation, said there was a ‘greater sense of nervousness’ over the last six weeks following the €750 billion bailout of Greece, adding that concerns over the direction of inflation and interest rates had also created new areas of uncertainty.
Newsom predicted that overall lending levels would remain depressed for two years and that the £15.1 billion of new lending to UK property undertaken during 2009, which was a ten year low, would be repeated this year and next as lenders ambitions for new debt issuance remains weak.
Further constraints on the availability of new money would be placed on banks by Basel II and Basel III regulations, Savills added. Newsom described the rules, which will increase the amount of capital a bank must set aside against distressed loans, as a ‘huge issue for property banking’. New lenders had entered the market but were not yet a powerful force, he added.
