UK commercial property returns are likely to finish just shy of 20% this year, Investment Property Databank predicted today.

The third quarter return of 3.8%, which was a slowdown on the 4.8% return in the second quarter, means that the 12-month rate currently remains above 20% at 20.6% and outstrip returns from UK equities and bonds, which earned investors 14.2% and 2.5% respectively. A return of 5.5% in the final quarter is required to keep returns above 20% for 2006.

IPD research director Malcolm Frodsham said: ‘Strong returns in the first half of 2006 pointed towards a return of over 20% from commercial property for the calendar year as a whole, but the Q3 total return has now perhaps put that figure just out of reach’.

The income return in the third quarter remained at 1.2%, but there was a slowdown in the rate of capital growth to 2.6% as the pace at which yields are falling slackened.

Offices remain the leading sector, with a 4.6% return in the third quarter, but the sector only narrowly outperformed industrial with 4.4%. This is now the fourth successive quarter in which offices have topped the sector hierarchy and the second with retail relegated to last place.