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News Release

London

Capital Values Reach Record High

According to Jones Lang LaSalle’s Q4 2009 Property Index


According to the latest Jones Lang LaSalle Quarterly Index, all-property total returns rocketed to 10% in Q4 2009, the second highest figure since the Jones Lang LaSalle Index began in 1978. The other comparable return was achieved in December 1993. Returns were boosted by the record increase in capital values of 8.4%, which was driven completely by falling yields across all three major sectors.  The strong investment performance over the fourth quarter saw all property total returns turning positive for the whole of 2009 at 6.0%.

Whilst rental growth remained negative at -0.6%, the pace of decline slowed. In 2009 average rents fell by -7.5%. The office sector recorded the sharpest fall in annual rents at -10.5%, followed by the retail sector at -6.5%. The industrial sector on the other hand records the lowest fall at -2.9%. Looking ahead, whilst prime rents are expected to stabilise over the course of this year, we expect average rents to fall further.

The Jones Lang LaSalle “style index” showed increasing discrepancy in investment performance between prime and secondary assets. This was also reflected in the Jones Lang LaSalle all property prime weighted yields which moved in by 70 basis points to 6.15% in Q4 2009, the second highest quarterly fall in yields since our recorded began in 1993.  As a result of this sheer scale of demand, returns on prime assets (growth properties) soared to 12.3% with a 10.5% rise in capital values, whilst secondary assets (value properties) recorded total returns of 7.1%, reflecting a rise in capital values of 4.9%.

Mike Penlington, director in Jones Lang LaSalle’s Valuation Advisory team said:  “Demand for prime products remained strong in Q4 2009. This is reflected in the considerable fall prime yields across all the sectors over the last three months. Indeed, prime yields in the West End office market fell to 4.75% (lot size below £10m) in December having dropped by 50 basis points over the last two months alone. Current yields are now below the long term average of 5%.  The outlook for secondary investments remains unclear however, given the weak occupational market.”
 
Mike added: “As we move into 2010 we expect investor demand to remain strong.  We expect this year to produce the highest total returns over the next four years. Investors will, however, keep a close eye on pricing particularly over the next two quarters to ensure that the market does not get ahead of itself. In addition, the UK market has corrected to such an extent that any further rises similar to that recorded in Q4 2009 could erode the risk premium in the medium term, when property yields will have to adjust to a more “normal” gilt yield and interest rate environment.”
 
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