UK commercial property returns plunged 5.3% in December, according to the IPD UK Monthly Index, in a month which saw a third consecutive record capital value fall of 5.8%.

The final figure brings all property capital value falls in the monthly index over 2008 to 27.1%, while the overall peak-to-trough decline now stands at a drop of 35.5%.

Over 2008 investment in UK commercial property produced an all-property total return of -22.5%.

This compares with a return of -29.9% by the FTSE All Share Index, 15% by the FT Gilts 5 - 15 Years Index and -46.6% by the FTSE Real Estate Index.

Impact on sectors

Capital value falls over the year in offices and retail have seen less than one percentage point difference – at a fall of 27.2% and 28.0% respectively – but they have reflected slightly different pressures.

In offices there has been greater strain on rental values, gathering pace over the final quarter of the year with rental values falling by -3.8% over the year.

However, the retail sector has suffered ‘more painful’ yield impacts on capital values, which have accelerated over the final quarter as severe trading conditions forced several high profile retailers to fall into administration.

Retail yields moved out from 6% in January 2008 to 8.1% in December 2008, while retail rental values fell by only 0.4%.

Capital values in the industrial sector fell by the least of the three main sectors over the year – although still substantial at a fall of 25.5%.

Vacancy rates have steadily climbed over 2008. A sharp increase in voids in both the retail and industrial sectors over 2008, which over December moved out to 8.5% and 14.6% respectively, further underpinning the weakening fundamentals.

Recorded since December 1994, void rental value as a percentage of total income was at an all time high of 10.4% last month.

Ian Cullen, IPD co-founding director, said: ‘The peak-to-trough decline in values of more than 35% in only 18 months is totally without precedent.

‘The pattern of the pressure on the markets is however beginning to change, with rental value decline now also contributing noticeably at least to office sector capital falls.’