The speed at which property values are falling almost doubled between May and June, denting hopes that the market had bottomed out.

The Investment Property Databank monthly index showed a fall in capital values of 2% in June, compared to 1.2% in May. The speed of the decline in property values had been slowing up until April.

Economic downturn

Rental growth remained very slightly negative at -0.04%, the same as in May.

There is a widespread expectation that a downturn in the economy could lead to falling rents, especially in the out-of-town retail and City of London office sectors.

Total returns were -1.5%, compared to -0.7% in May, with income return remaining at 0.5%.

On a rolling 12 month basis the all property total return has now hit a record low at -14.9%. Aside from the past few months, the worst annualised decline for the monthly index occurred in April 1991, when the index showed an annualised drop of -8.1%.

Accelerating downward pressure

All sectors edged lower in June. Retail, which suffered the worst downturn, fell -1.9%, compared with a fall of only -0.7% in May. The total returns from Offices and industrials fell to -1.27% and -0.69% from -0.92% and -0.52% respectively.

Ian Cullen, Director and co-founder of IPD, said: “The accelerating downward pressure upon returns still primarily reflects adverse yield adjustments. Rental value movement, though negative for the second successive month, remains barely measurable”.