Property returns

2013 was a better year for UK commercial property than many had predicted.

In 2013 there was much discussion about the state of the residential property market and whether government efforts to help buyers was creating a bubble.  The Nationwide Building Society therefore decided that property values rose by 8.4% over the year, while Halifax put the figure at 7.5%.  The Bank of England has already acted by restricting the use of cheap finance to banks under the Funding for Lending Scheme to business lending only.  It will be interesting to see how long the second phase of Help to Buy – government backing for 95% mortgages – endures.

Meanwhile, at the commercial end of the property market, capital growth was more modest.  According to the December monthly figures from Investment Property Databank (IPD), UK commercial property values rose by an average of 3.8% in 2013.  This reflected a recovery in values across the year as the economic outlook improved.  IPD notes that in January 2013 only three out of 30 regional markets it measures showed rises in property values, while by December just one market outside London was still showing prices declining.

Alongside the capital appreciation, there were rental income returns, which IPD says amounted to 6.8% overall.  Together that produced a total return for commercial property of 10.9%, much better than most pundits had expected at the beginning of 2013.  Despite the solid overall performance, there remain differences between the three main property sectors.  While the office and industrial sectors both produced total returns of over 14%, retail produced only 7.6%, of which a mere 0.8% was capital appreciation.

IPD is optimistic for 2014, saying “While there will undoubtedly be setbacks, 2014 is nevertheless shaping up to be a good year for the commercial property sector.”  Individual investors seem to be of a similar view: the property sector was the third most popular for net retail sales of collective funds according to the Investment Management Association.

The value of your investment can go down as well as up and you may not get back the full amount you invested.  Past performance is not a reliable indicator of future performance.

20th February 2014