UK commercial real estate returned 1.7% in September – representing the second highest monthly returns of the year, according to the IPD UK Monthly Property Index.

It also represents a jump from the 1.4% returns reported for August. The main driver was a 1.2% rise in capital values, while income returns remained stable at 0.5%.

Yield compression remained the main driver of rising values, adding 1% to values in September, but rental growth was also a significant factor. IPD revealed rental growth averaged 0.4% for the month – its highest level since June.

The returns compared favourably with other asset classes as bonds and equities both saw negative returns last month.

Offices and industrials were the two leading sectors, both returning 1.9% in September, while retail lagged behind on 1.4%. 

However, on a regional basis central London retail was the top performer, returning 3.6% in September.

Phil Tily, IPD executive director and head of UK and Ireland, said: “The September figures confirm that strong growth is continuing across the UK commercial property market, primarily on the back of positive sentiment on the part of both domestic and overseas sources of capital.

“It is also encouraging to see rental values now playing an important part in the recovery, particularly in the retail sector where they have now grown consecutively for the last four months.”

Values have now risen by 14.1% over the 17 months of consecutive recovery, according to the IPD UK Monthly Property Index, and are now less than 29% off peak levels of 2007.