THE DECLINE in commercial property values is gathering pace with the latest property index showing that capital values fell by 7.2 per cent in the three months to the end of June.


The fall in values has been triggered by a sudden collapse in investor confidence and is more than double the 3.3 per cent decline in values recorded in the first quarter of the year.


The London-based Investment Property Databank (IPD) also reports that for the second successive quarter commercial property showed negative returns, falling by 6.2 per cent, the worst performance since the index was launched in 1995.


Retail property, where rental yields are tightest, was most affected by the decline, with capital values down an unprecedented 8.1 per cent in the second quarter of the year. The capital value of offices slid by 7.3 per cent while industrials fell by 2.2 per cent.The dramatic fall in capital values, in spite of a slight improvement in rental values of 1 per cent across all sectors, is being attributed to increases in yields.
For all commercial property sectors, the increase in yields knocked 8.2 per cent off capital values in the second quarter of the year alone. Average yields increased to 4.6 per cent at the end of June from a low of 4 per cent only six months earlier.


IPD research manager Angela Sheahan says that the repricing of the commercial property sector has been triggered by the credit crunch and reflects "an economy-wide repricing of all risky assets".The fall in capital values had been widely expected because of a dramatic slowdown in investment activity as a result of the financial uncertainty. The lack of market activity and worsening economic climate has meant that investments in Ireland during the first six months of this year were less than