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UK office rents fall more than any other sector

Commercial property prices in Britain have fallen by 40% from their peak, however the office market felt the most pain with rents falling by 1.74% in February – three times greater than any other sector. The pace of decline in capital values though eased slightly.

The decline of property investment returns in the UK showed some signs of easing in February – however it came at the expense of office rents in Britain, which fell by 1.74 percent, three times more than any other sector.

According to the monthly IPD UK index, property rental levels slid by an average 0.93 percent in February, “the sharpest single monthly movement so far in this recession”. It was largely driven by the office sector, where rents fell by 1.74 percent compared to the previous month.

In comparison retail rents dropped by just 0.55 percent, while industrial properties fell by 0.45 percent in February.

Overall, UK commercial property market capital values fell by just over 3 percent in February, taking the peak to trough decline in prices to 39.5 percent  since June 2007.

According to IPD, capital values over the past three months fell by almost 10 percent, down from their peak at the start of the year of more than 13 percent.

Many private equity real estate professionals see the UK has ahead of the curve in terms of repricing, however speaking to PERE magazine recently, the Royal Institute of Chartered Surveyors (RICS) said commercial property markets in the UK were expected to see peak to trough declines comparable to the downturns of the two recessions of the 1970s and 1990s.

Capital values, the organisation said, were expected to fall a further 16 percent in 2009, on top of declines of around 25 percent since the start of the credit crunch in June 2007. The office sector could be one of the hardest hit, with values falling – peak to trough – by up to 60 percent.