The ongoing trading difficulties in the retail sector, in part due to the expiry of leases and store closures, has been largely responsible for further falls in rental income and capital values in the first three months of the year, according to the latest property index from agents Jones Lang LaSalle.

Liquidation
Despite the continuing challenges, the overall returns from the index were positive for the sixth consecutive quarter – up by 1.8 per cent.

The report showed that rental income in all three sectors of the market – retail, office and industrial – fell by 3.1 per cent in Q1 and by 7.8 per cent over a 12- month period.

Hannah Dwyer, head of research at Jones Lang LaSalle, explained that the properties studied in the index represented a typical investment portfolio with real properties across all sectors.

The index, she said, had been significantly impacted in the last quarter by the retail sector with some tenants going into liquidation, examinership or receivership.

This had created vacancies and these properties were no longer generating rental income. Unfortunately, this was an increasingly common occurrence for retail properties in investor portfolios.

Despite the slippage in income from all the properties, she reported that the JLL portfolio had an income yield of 9.3 per cent – a return which was to some extent protecting investors from the fall in values.

The index showed that estimated rental values over all three sectors fell by 3.2 per cent in the first three months of 2013. However, the fall was greatest in retail, down by 7 per cent in the last quarter and by 9.9 per cent over a 12-month period.

Dwyer said retail rents continued to be under pressure, with stabilisation only evident for prime rack-rented units on the main high streets and strongly performing centres. Other types of retail and other locations were continuing to struggle, she said.

Stabilisation
Not surprisingly, overall capital values continued to fall, recording a dip of 0.6 per cent in Q1 and 6.9 per cent over a 12- month period.

The greatest reduction in values was in the retail sector which was back by 2.3 per cent in the first quarter and by 10.9 per cent over the past year.

On a more positive note, office capital values increased slightly in the quarter – +0.3 per cent – which shows some stabilisation of yields and rental values across the sector.