Overall commercial property returns this year are on target to reach 10 or 11 per cent, according to leading investors, writes Jack Fagan, Property Editor.
Returns of this dimension would signal a rapid recovery in the market following a disappointing performance in 2002, when when the figure was 2.2 per cent.
The stronger returns are largely due to a sharp pick-up in the retail market, not only in capital appreciation but also in rents.
The overall performance would have been even better but for the Government's decision in the last budget to increase stamp duty by 3 per cent.This led to a drop in capital values by almost the same amount.
Of the two indexes on the commercial market, one, from SCS/IPD, has shown that the overall returns for the nine months up to the end of September reached 8 per cent.
A separate study by Jones Lang LaSalle has been less bullish, reporting returns of 5.6 per cent for the same period.
However the SCS/IPD study covers a broader sample of property investments held by both institutions and private investors.
Significantly, the Jones Lang LaSalle index showed that the capital value of retail property rose by 16.7 per cent in the 12 months up to the end of September and by 12 per cent in the first nine moths of this year. Retail rents went up by 9.6 per cent during the same period.
The retail sector returned the strongest growth and contrasted with offices, where according to JLL, capital values and rents decreased over the year.
Industrial property returned a slight decline in values and a marginal rise in rents.
Overall, commercial property returns for the 12 months to the end of September were 5.8 per cent, according to the JLL index. But overall returns in the third quarter increased by only 1.3 per cent, a slower rate of growth than in the previous two quarters.
This JLL figure of 1.3 per cent will come as a surprise, because the SCS/IPD study has already reported that all property returns for the third quarter reached 3.6 per cent.
Capital values in the JLL portfolio as a whole rose by 1.4 per cent in the quarter and by 2.2 per cent in the 12 months to September 2003. The strongest sector was retail, where capital values grew by 4.6 in the third quarter, giving a 16.7 per cent increase in the year to September, 2003.
Capital values of industrial property remained unchanged in the third quarter but rose by 0.3 per cent in the nine months to September. However, industrial capital values fell by 2.3 per cent over 12 months.
Office capital values decreased by 0.2 per cent in the quarter and by 4.3 per cent in the year. The drop in capital values is attributable to the rise in stamp duty.
Rental values remained unchanged in the third quarter and in the nine months to September, although the year-on-year increase in rental values was 0.6 per cent.
The report showed that office rental values had the poorest performance of the three commercial property sectors, with a drop of 1.5 per cent in the third quarter and 1.9 per cent in the first three-quarters of this year.
Income in the portfolio continues to record positive growth with an increase of 1.9 per cent in the quarter and 9.2 per cent in the year to September, 2003.
