Confirmation of the strong performance by the commercial property market last year has come from the London-based Investment Property Databank. It calculates that the all-property return in 1999 was 31.1 per cent, somewhat down on the previous year but still maintaining the bull run.
The findings compare with returns of 29.4 per cent reported last week by agents Jones Lang LaSalle. The latest SCS-IPD index shows that the returns in the last quarter alone were a little up on those earlier in the year.
But flattening rates of rental value growth, and a slowing fall in yields, pushed returns on a gentle downward trend.
During the fourth quarter, both rental value and capital growth picked up. For the calendar year as a whole, capital values rose by 24.6 per cent and rental values by 14.3 per cent. At the all-property level, equivalent yields continued to fall, dropping by 0.08 of a percentage point in the last quarter. This contributed to a cumulative drop for the year of nearly half a percentage point.
The index showed that property again outstripped other asset classes. At 6.6 per cent, equity returns turned positive in the last quarter of 1999, but the calendar year result remained at 2.2 per cent due mainly to the poor performance through the summer. Gilts also did badly, returning a minus 0.2 per cent in the last quarter and registering a negative return of 2.5 per cent for the 12 months.
A slight slippage in performance was mirrored across all three sectors of the property market. Retails showed a return of 22 per cent, down 12.3 per cent on 1998. Rental growth slowed to 8.7 per cent, while yields fell by a modest 0.3 of a percentage point over the year. A return of 6.4 per cent in the last quarter confirmed retails as the worst performing sector in 1999.
Offices maintained their lead in the market, although their return of 36.7 per cent was 5.8 per cent below the corresponding figure for 1998. Capital growth continued strongly in this sector, at 7.3 per cent over the last quarter, and 30.2 per cent for the year. Offices were the only sector to report an improvement in rental value growth during the year, an increase of 18.4 per cent.
An industrial return of 27.8 per cent was not that far removed from the 28.9 per cent reported in 1998, moving them ahead of retails in the ranked order. The industrial market rallied in the last quarter with a return of 7.1 per cent. Rental growth of 4.6 per cent helped industrial values rise by 5.5 per cent in the last three months of the year.
While the IPD returns of 31.1 per cent are down on the 38 per cent for 1998, the overall performance is very high when compared with long-term averages.
