The pace of decline in property returns slowed in the first quarter of this year, after last year’s record falls, according to Jones Lang LaSalle.

Real estate returns fell by -6.4% in the first quarter of 2009, compared to -12.8% the previous quarter. In 2008, total returns were -22.4% over the year, the lowest since the Jones Lang LaSalle Quarterly Property Index was set up in 1978.

The impact of rental decline on capital values intensified, with rents falling by -2.8% in the first quarter compared to -1.6% in the last quarter of 2008. Coupled with rising yields, this lead to a declined in capital values of -8.2% in the first quarter of 2009 and -27.5% over the last year.

Capital values fell by -8.9% in the office sector, -8% in the retail sector and -7% in the industrial sector.

Mike Penlington, director in Jones Lang Lasalle’s valuation advisory team, said: ‘The Jones Lang LaSalle “style index” showed increasing discrepancy in investment performance between prime and secondary assets. Secondary assets continued to struggle with total returns of -8.3%, reflecting a double digit fall in capital values of -10.3.

'Total returns on prime assets were -5.5% with a -7.2% drop in capital values.

‘Over the course of this year we will continue to witness increasing price discrimination and prime assets with longer leases on secure covenants will be on the list of the investors who now have cash to spend.

'For secondary product, however, the outlook remains challenging. With increased risk from corporate insolvency and a lack of interest from investors, the floor for secondary yields is less clear.’