The media are bombarding us with bad news stories about the residential property market.
For example, it was reported the Nationwide Building Society’s latest survey showed house prices recorded their largest monthly fall since 1991.
Prices dropped 2.5 per cent in May and are apparently now 4.4 per cent lower than a year ago, a fall of ￡8,000 on the average UK price, taking the figure down to ￡173,583. But what of commercial property? To recap, we all know this market had a particularly testing 2007 with sharp falls in capital values. before 2007, UK commercial property had delivered positive returns every year since 1993 and returns of 15-18 per cent were not rare three or four years ago.
As recorded by the Investment Property Databank (IPD) Monthly Index, the UK commercial property market generated minus 3.4 per cent in the first quarter outperforming the FTSE All-Share Index (minus 9.9 per cent).
Despite the fact capital values have fallen 14 per cent over six months, rental growth remained healthy at two per cent (last three months annualised, IPD Monthly Index) and quarterly income returns have increased (from 1.2 per cent the third quarter of 2007 to 1.4 in the opening quarter of 2008 according to the IPD Monthly Index).
More promising figures have been published by the Investment Management Association (IMA), which show retail investors are continuing to return to commercial property funds with inflows of ï¿¡71 million in April.
According to the latest IMA investment fund statistics, this level of investment followed inflows into the property fund section in March turning around the four previous months of outflows from property funds.
Richard Saunders, the IMA’s chief executive, has said: “After two extremely modest quarters, net retail sales bounced back in April to ï¿¡1.5 billion, the best for a year.â€
This good news, as is becoming increasingly familiar in the current environment, is tempered with bad news. Increased borrowing costs and pronounced nervousness in the financial services sector has reduced property investment market liquidity, decreasing transaction volumes and generated downward pressure on property valuations.
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