Still no relief from the prolonged gloom that has settled on the UK commercial property market. The latest monthly Investment Property Databank (IPD) Index (for July) shows that total returns across UK commercial property funds fell by 1.3 per cent over the year to the end of July 2008, a fall that was only slightly less than in the preceding month when all property total returns stood at -1.5 per cent.

The pace of decline in capital growth also slowed marginally to -1.8 per cent from -2.0 per cent in June. If anything, the detailed figures were even worse than the overall trend.

Ian Cullen, director of IPD, observed that ‘July was the first month of this downturn in which all three commercial property sectors reported negative rental value movements. Offices slid to -1.1 per cent, while Retails and Industrials also worsened, to -1.5 per cent and -1.4 per cent respectively.’

He adds ‘the income return remained unchanged at 0.5 per cent. All Property rental growth, however, turned more negative, and the -0.1 per cent fall in the month represented a 60 basis points deterioration compared with June, suggesting that landlords will be having more difficulty in pushing through rent increases.’

First timers return
There are, however, more encouraging signs emerging from the residential property market.

The most recent monthly mortgage survey from Spicerhaart Financial Services indicates that first time buyers are showing signs of returning to the property market, as house price reductions begin to take effect. Steve Cox, operations director of Spicerhaart Financial Services, observes that, ‘With property prices falling by 15 per cent in many areas already this year, there are growing opportunities for first time buyers to get onto the property ladder. This group is vital for the overall economic recovery of the country.’

He adds, ‘The survey shows that following a drop in first time buyers, numbers are now beginning to rise, with a one per cent increase recorded last month.

‘With income multiples returning to a more traditional level of three times their salary, first time buyers are now able to enter the property market at a much more sustainable and affordable rate.’

Slowing the decline
Cox concludes ‘As the Bank of England reveals that the cost of a mortgage is finally falling, there is further good news on the horizon for all borrowers with a number of banks set to announce further mortgage rate cuts and new products. This will aid consumer confidence and create improved liquidity in the lending market. With new products entering the market and a reduction in borrowing rates, now is an ideal time for potential first time buyers to step onto the property ladder and take advantage of the lower house prices.’

And the residential property market could certainly do with a boost. The latest FT House Price Index for July revealed a fifth consecutive month of nominal
price falls. Dr Peter Williams, chairman of Acadametrics, which produces the index, comments that ‘Prices in all regions are now in decline on a monthly basis and five regions are now negative on both a monthly and an annual basis.’