Property derivatives hold firm as real estate values fall
Trade in property derivatives increased in the second quarter of this year, as direct commercial real estate continued to suffer a “meltdown” from falling rents and capital values.
According to the Investment Property Databank, £1.9bn was traded in property derivatives in 302 trades in the second quarter of the year – taking global trading volumes to £11.7bn.
The majority of the trades were in the UK, with £10.1bn total outstanding notional at the end of the first half of the year. This followed £1.6bn of trades in 252 deals.
However, the increase in trade in property derivatives followed another three tumultuous months in commercial real estate.
In the second quarter of the year, there was a -2.7% total return in all property for the three months to June 30, according to the IPD UK quarterly index. This was an easing of the rate of return from the previous three months, when returns were -3.3%.
Capital values fell -4.0% for the three months, which is slightly better than the -4.6% in the preceding quarter and “noticeably better” than the -8.6% in last quarter of last year.
However, IPD research director Malcolm Frodsham said that quarterly returns have only been worse once between 1986 and 2006. He said that the all property total return has been in “meltdown from June 2007” with a decline in capital values for the 12 months to June 30 of -14.0%.
He said rental values from London office had “plummeted” and rents in retail property had “faded”.
-- Write to Darren Lazarus at dlazarus@efinancialnews.com
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