As the pressure on the supply of property has eased, rental growth has fallen markedly and LSH points to the latest IPD figures showing all property rental growth at 3.7% in the year to September 2001. Retail rental growth fell to 2.1%, and industrial to 3.1%. The office sector performed better although growth was down by almost half from 10% earlier this year to 5.9% at present.

As rents have fallen, yields have continued to climb, and all property yields have risen from 6.63% to 6.99% in the past 12 months. But according to LSH, property remains a relatively safe investment which is helping to maintain investment turnover, particularly in higher-yielding properties.

Looking ahead, LSH notes that GDP growth is expected to rise in 2002 to 2.1%, fuelled by lower interest rates and higher Government spending. And current projections are for 2.6% GDP growth in 2003 and 2.5% in 2004. This means that property returns should remain positive, although subdued.