Total returns improved even though rental values fell by –0.9% in 2002, although the downturn was largely limited to the office sector. Retail returns more than doubled from 5.5% in 2001, to 14.1% last year and industrial returns rose by two and half percentage points to 10.8%. But office total returns slumped to 3%, from 7.6% in the previous year.
Office rental values fell by –6.4% in 2002, reflecting a sharp downturn in London and around the M25. By contrast, retail rental values rose by 3.1% in 2002, broadly maintaining the trend over the two preceding years. Industrial rental growth faded from 3.1% in 2001, to 1.0%.
IPD Research Director Mark Callender said: "Although last year's total return was close to the long-term average, 2002 was highly unusual in that property yields moved favourably, despite a significant deterioration in rental growth. This apparent paradox reflects the current low inflation environment and the fact that unlike in previous downturns, geared investors have not been shut out of the market by prohibitively high interest rates".
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