Prime property values fell by a further 0.2% in January, as the new year brought little good news for the UK property market.

The latest IPD UK Monthly Index shows that the fall in values led to the lowest monthly total return in January - 0.4% - since June 2009.

“Rental values fell back into decline in January, albeit slightly, and they have now been negative for three out of the last four months,” said Phil Tily, managing director of the UK and Ireland at IPD. “Yields saw slight expansion, but fragile occupier demand remains the main driver behind falling capital values.”

He added: “With so much uncertainty still surrounding the future of the UK and the eurozone, and reports indicating that the UK economy is falling back into recession, it’s no surprise that demand from tenants remains lacklustre across all sectors. The recent quantitative easing announcement by the Bank of England shows just how hard the authorities are trying to increase spending.”

Rental values in the office sector ceased to benefit from strong growth in London in January, and declined for the first time since October 2010. City offices suffered a rental fall of 0.1%, while growth in rents in outer London slowed to just 0.1%. Even the West End and Midtown, which have benefitted from tight supply and strong demand, saw rental growth slow to zero.

Tily added: “The City has been an area of strong growth since the recession, with values recovering by almost 35%. However, in the last few months there has been increasing anxiety surrounding the sector - in December, values declined amidst softening yields and the subsequent rent declines in January vindicated that investor-led trend. Essentially, investors have begun to question the City’s ability to maintain rental growth in the short term, putting current yield levels under sharp scrutiny.”  

In the retail sector fading demand continued to impact on capital values; central London and retail warehouses were the only areas to record positive growth. Shopping centres continued to be one of the hardest hit sectors - London and the South suffered declines of 0.5%, while those in the rest of the country fell by 0.7%.

Retail rental values told a similar story, falling almost universally for standard retail units across the country, the exception being in central London. Even retail warehouses in London and the south east suffered a drop off in rents, of 0.1% apiece. 

The IPD UK Monthly Property Index is based on 3,628 properties, valued at £33.9bn.