CAPITAL values across all classes of UK commercial property rose by 3.3% in December, according to the CB Richard Ellis (CBRE) monthly index.
This is the largest single month’s growth in the nine-year history of the index.
The commercial property sector defied negative expectations for 2009 with total investor return for the year at 4%. The figure for December was 3.9%.
The monthly rise in capital values was driven by the performance of retail warehouses where intense investment demand meant capital values surged 6.1%.
The six-month spurt in retail warehouse performance has meant that values are actually 6.5% higher than they were at the end of 2008, with a total return of 15.6%, by far the best performer of 2009.
Central London offices also continued their strong performance in December, with capital value growth of 3.7%, leaving the annual figure only marginally down at -2.1% for 2009.
Rental values continued to correct at the all-property level, with a further fall of 0.3% in December.
On an annual basis, this meant rental values are 8.9% lower than the end of 2008. Central London offices rental values are down 21.5% on a year ago.
Peter Damesick, head of UK research at CBRE, said: “The sharply accelerating returns and value increases seen over the past few months inversely mirror the worst of the downturn seen this time last year.
“Rapid yield compression since mid-year has lifted property values by 10.3%, with stronger growth in retail warehouses and central London offices.
“Strong demand from overseas investors and renewed flows of money into UK property funds have been the key drivers of growth, with limited availability of good quality assets to buy.
“Increased capital flows into property look likely in the near term, giving further momentum to the market in the early part of 2010.”
CBRE also published its view on the prospects for economic recovery in the UK and across the Eurozone.
Its report put forward the view that intervention by European governments and their central banks had had a stabilising effect.
The report added: “Recent economic data are more varied and suggest that some economies are resuming a growth path, albeit a gradual one.
“While many economies and real estate markets will therefore enter the New Year with prospects apparently looking brighter than seemed likely even a few months ago, this (2009) has been a challenging year, to say the least.
“The steepness of yield curves at present suggests at least some concerns about inflation potential.”
