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UK commercial property produced the worst monthly total return on record last month, led by a sharp drop in the value of industrial assets.
UK property returned on average -6.5% in October, according to data from MSCI’s UK Monthly Property Index, which tracks the value of 1,765 properties across the UK worth a combined £34B and held in 37 portfolios.
The worst monthly return during the post-Lehman collapse financial crisis was -4.75%, MSCI said. The worst during the post-Brexit value drop was just over -2%. And the worst during the post-Covid valuation fall was just less than -2%.
By far the worst performing sector was industrial, which saw a total return of -9%, more than double the fall it saw during the financial crisis. The makeup of the index shows the institutional investors who value assets monthly have had a torrid month: 42% of the assets in the index are industrial, when measured by value, with 26% in offices and 22% in retail.
Industrial values shot up furthest during the recent boom, and are now falling fastest. In October retail properties fell by just over 4% and office properties by just over 5%, both below their maximum monthly drop during the Great Financial Crisis.
The third quarter of 2022 was the worst for returns since 2009, with a negative return of -4.3%. The big drop in October means the fourth quarter is almost certain to be one of the largest on record.
The turnaround in fortunes for UK real estate, precipitated by the sharp rise in interest rates, has been dramatic. In 2021, the sector produced a 20% return. In the past six months, the return has been -8.6%, and for the whole of 2021, it is -2%.
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