Returns and capital value growth slow in Q2 – JLL
More evidence has emerged of a slowdown in UK commercial property, as Jones Lang LaSalle says its Quarterly Index recorded a fall in all-property total returns to 3.6% for the second quarter, from 6.2% in the first quarter.
Capital values grew 2.0%, also slower than in the first quarter, as the pace of yield compression continued to diminish, JLL noted. The group said the retail sector recorded the strongest returns in Q2, at 4.1%, reflecting capital value growth of 2.5%. Returns for the office sector were 3.8% and for the industrial sector 2.0%.
Average rental growth for all property continued to slip, coming in at minus 0.1% in Q2, but this hides the differences between sectors – offices continued to record growth in rents, up 0.1%, while industrial rents fell 0.4% and retail rents dipped 0.2%. The stronger office sector figure reflects the “considerable improvement” in rents for City and West End offices, the group pointed out.
Mike Penlington, director in JLL’s valuation advisory team, said the group expected price discrimination to remain substantial, as the weight of money that had fuelled investor demand at the start of the year tailed off. He added that investors would try to identify opportunities “in a market where rents and values for assets in weaker locations will remain under downward pressure.”
