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News Release


First positive quarterly returns since June 2007

According to Jones Lang LaSalle Q3 2009 UK Property Index

According to the latest Jones Lang LaSalle Quarterly UK Property Index, all-property total returns improved considerably in Q3 with positive returns of 4.5%, the highest returns recorded since Q2 2006.
This translated into annual total returns of -16.3%.  Growth in capital values were 2.5% compared to a -3.7% fall in the previous quarter. The improvement in capital values were driven principally by falling yields across all three major sectors. 
Over the last twelve months to September all property capital values fell by -22.3%.  Rental growth remained negative at -1.2%, although the pace of decline slowed. We anticipate rents to fall by -9.7% in 2009 and -3.9% in 2010, less drastic than feared earlier in the year. Rental growth will start to accelerate in 2013 with the economy expanding due, in part, to the limited supply that will be added to the major markets from 2011-2013.
Compared to the other asset classes, however, all property underperformed both equities and gilts. The rally in the equities market saw returns reaching 22.4% in Q3 compared to 4.5% for all property. Gilts (over 15 years) produced comparable returns of 5.9% over the same period.
Capital values rose across all three major sectors with the office sector recording the strongest uplift of 2.9% followed by the industrial sector at 2.5%. Retail values turned positive for the first time since March 2007 at 2.2%.  The improvement in values across the sectors (office, industrial and retail) was driven falling yields. This translated into all property total returns of 4.8% for offices, 4.6% for industrial and 4.1% for retail. 
The Jones Lang LaSalle “style index” showed increasing discrepancy in investment performance between prime and secondary assets. Although secondary assets (value properties) continued to struggle, total returns turned positive to 3.0%, reflecting a rise in capital values of 0.8%. Total returns on prime assets (growth properties) were 5.8% with a 4.0% rise in capital values.
Mike Penlington, director in Jones Lang LaSalle’s Valuation Advisory team, said: ” Whilst demand for prime products continue to strengthen, the outlook for secondary investments remains unclear given the weak occupational market.  Although demand for secondary properties remains limited, some investors are willing to take risk on well specified assets with shorter term income, if situated in good locations with a yield that reflects the future income profile and the risk. Investor interest in this category may increase given the scarcity of prime product.”
Mike Penlington added: “The marked improvement in investment performance clearly confirms that the market has turned, investors should however keep a close eye on income maintenance and yield movement in non-prime assets.  We may very well see prices rising further in the short term as yields fall. Investors however should remain vigilant that the market does not get ahead of itself. A re-rating of yields is difficult to justify given that vacancies are still high, rental income is falling and economy growth will remain weak for considerable time.”