Market begins to stabilise

WITH AN increasing volume of distressed commercial properties now going for sale, the latest property index figures suggest that the market may finally be stabilising.

The findings in the Jones Lang LaSalle (JLL) study shows an improvement of 0.6 per cent in overall returns in the first three months of the year, with income up by 1.6 per cent and rental values up by 0.7 per cent.

Although the year-on-year returns are still in negative territory (-1.2 per cent), the reduction in stamp duty from 6 to 2 per cent has boosted overall results, which grew by 3.6 per cent in the final months of 2011.

Hannah Dwyer, research analyst at JLL, said the index results "are best described as stable which, given past fluctuations, is encouraging for the market."

The Government decision not to proceed with a ban on upwards only rent reviews in existing leases and the removal of capital gains tax on purchases before the end of 2013 are expected to boost investor sentiment.

However, the investment market is still being seriously hampered by the shortage of bank lending.

JLL said there were signs that the market was still some way from recovering.

While overall income increased by 1.6 per cent, the capital value of offices, retail and industrial buildings continued to decline in the last quarter, falling by 1.7 per cent in the three months and by 10.2 per cent in the year to March last.

The fall in values was most notable in the office sector which slipped by 2.4 per cent in Q1 and by 11.3 per cent over the 12 months.

Capital values in the industrial sector declined by 1.9 per cent in Q1 and by 11.2 per cent over the full year. Retail performed slightly better falling by 1 per cent in the quarter and 9.4 per cent over the 12 months period.

On the positive side, rental values across the index rose by 0.7 per cent in the first quarter, the first time this has happened since Q1 in 2008.

However, the change in values varied significantly with offices and industrials up by 1.8 and 0.5 per cent respectively, while retail was down by 0.7 per cent.

This underlines the continuing problems facing the retail sector.