London pushes ahead as rest of UK struggles to keep up
We’re not short at the moment of gloomy commentary on the outlook for UK commercial property – as well as the quarterly index from Jones Lang LaSalle showing a slowdown in returns and capital values, and the Savills development activity expectations index turning negative, we also have the latest CB Richard Ellis monthly index, which shows again that returns and capital growth slipped last month. One common theme among reports such as these is the sharp difference between the market in London – particularly for central London offices and prime retail positions – and the rest of the UK.
CBRE’s Monthly Index for July recorded total returns for all property of 0.9%, down from 1.1% in June, and capital growth of just 0.4%. Nearly all sectors of the market experienced a slowdown, CBRE says, except for central London offices. This segment boosted the overall returns for the offices sector to 1.2% with capital growth of 0.7%. Returns for retail were just 0.7% with capital values up 0.3%, while industrials bucked the trend with a small improvement on June’s figures – returns rose 0.8% and capital growth was 0.2%. Industrials are still, however, the weakest sector on a year-to-date basis.
Cushman & Wakefield’s recently published Marketbeat report also comments on the clear polarisation within the retail sector between the market for central London retail space, which has continued to report strong rental growth, and much of the rest of the UK, particularly parts of the north of England and the Midlands, where rents are still softening. In the offices market, while the strong recovery in central London has continued, with rents rising in the City and West End, the recovery has been patchy elsewhere – East Anglia, Scotland and the South West recorded some growth during Q2 but office rents were generally unchanged elsewhere, the group noted.
