UK commercial property capital values rose over the third quarter of this year by 1.5%, a 5.6% improvement on the previous three month period, according to the IPD UK Quarterly Property Index Q3 2009.

The total return to investors, including income as well as capital growth, was 3.4% over the quarter, up from -2.2% the previous quarter, bringing the 12-month return to -18.2%. In nominal terms, these figures represent the first increase in capital values and positive returns for UK commercial property investment since the second quarter of 2007.

Third quarter and annual capital growth figures for the three principal sectors were 2.1% and -24.1% for Retail; 0.7% and -24.8% for Offices and; 1.5% and -22.1% for Industrials

IPD said that the driver of capital growth was a fall in market valuation multiples, reflecting increased demand by investors for real estate in the UK. The running yield on commercial real estate had peaked at 7.7% in June, a figure three percentage points higher than June 2007.

The impact of rental movements continued to be negative with rental value falls of -1.6% over the quarter, a sharp improvement on the falls registered in the first half of the year.

Malcolm Frodsham, Research director at IPD said: 'After eight quarters of negative performance commercial real estate has moved back into the black. The rapid correction in market values in the UK has boosted market yields to over 7.5% and with sterling so weak, the UK market is proving irresistible to overseas investors. Of real encouragement last quarter was that whilst rents are still falling, these falls have finally moderated across huge swathes of the UK real estate market.'