The latest IPD Monthly Index shows UK commercial property capital values declined by 14.2% in the calendar year 2022. Income was something of a saviour of total return though. This was not a great result for the investors, but it is understandable if looked at through the eyes of the other two major asset classes. The UK FTSE All Share delivered a total return of 0.2 %, whilst the UK Government Bond index delivered a calendar year total return of -25.1 %.

The headline property figures hide some dramatic in-year movements. The last few months of 2022 saw the fastest ever decline in capital values for commercial property. Valuers have long been regarded as being behind the curve of the market, so a move like this is very interesting. The RICS Red Book encourages the use of comparable evidence for valuation purposes, so it has been inevitable that valuations were backward looking. It is not a surprise then that listed property sector investors laugh in the face of the property valuation industry by opening and closing discounts to NAV at certain points in the cycle. That should just not be.   

The dramatic downward adjustment in values has been explained in some circles as ‘the Pereira Gray effect’. Probably not the outcome he had in mind at the time of writing his report for the RICS on Commercial Property Investment Valuations and how the RICS might improve confidence in them!