A report on the commercial property market shows that while the overall performance remains strong in absolute terms, there is an obvious trend towards a slower pace of growth. The Jones Lang LaSalle property index estimates that returns in the first three months of this year reached 5.3 per cent - the lowest quarterly return since 1997. The index measured the overall returns for the year to the end of March at 27.6 per cent. A more comprehensive study by the London-based Investment Property Databank recently put the returns for the same period at 28.2 per cent.
According to Jones Lang LaSalle, capital values grew by 22.2 per cent in the year to the end of March. The first quarter of 2000 showed a capital increase of 4.2 per cent across the portfolio.
The strongest sector was again offices, where capital growth was 4.9 per cent for the quarter and 26.9 per cent for the year to March. This was partly based on a marginal reduction in yields, but mostly on the increase in rental values over the period. Office rental values rose by 4.3 per cent in the first quarter of this year, and by 19.8 per cent in the year to March last. With a very low vacancy and delays in the delivery of new space, there appears to be little brake on the pace of growth.
In the retail sector, capital values also put in a strong performance, rising by 3.5 per cent in the first quarter and by 16.2 per cent in the year to March. Retail yields are still sharpening marginally on the best high streets, where the anticipation of rental growth is still high. Otherwise, rental growth expectations have become more modest with retail rental values rising by 1.3 per cent in the first quarter, compared with 9 per cent in the year to March.
The industrial sector is the most modest performer, although capital growth was still running at 14 per cent in the year to March. The first quarter of 2000 showed growth of 2.6 per cent. Industrial rents rose by 1.1 per cent in the quarter and 4.9 per cent in the year to March.
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