Commercial property returns are slowing, Investment Property Databank’s latest index reveals

Property delivered a return of 0.7% in January, according to the latest IPD monthly index, which was half that in the previous month, but still better than UK equities and bonds, which gave investors -0.3% and -1.3% respectively.

While the income return component of property’s 0.7% return remained unchanged at 0.4%, there was a slowdown in the rate of capital growth to 0.3%.

The two drivers of capital growth were both positive in January. Rental values grew by 0.2%, compared with 0.5% in December, and a further fall in yields gave 0.2%, compared with 0.7% in December.

Offices remain the leading sector with a 1% return, while the industrial and retail sectors generated a 0.6% and 0.5% return respectively.

‘January has taken up where 2006 left off;’ said IPD research director Malcolm Frodsham. ‘Office rental growth is very strong in central London but weakening on out-of-town retail assets, and the investment market remains robust.’