Weaker commercial property trends, but “a growing sense of optimism” – CBRE
The UK commercial property market continued to experience weaker trends during the past month, with values down and total returns fairly neutral, says CBRE. The firm’s Monthly Index for March shows All Property total returns of +0.1% and a fall in capital values of 0.4%, the same as for February. CBRE’s Nick Parker, senior analyst of economics and forecasting, says the weaker values are the result of investors being cautious about occupier market prospects, but adds that certain markets and sectors still remain buoyant – particularly prime Central London.
“Indeed, the gap between prime and secondary has been heightened by this caution and drive for secure incomes. However, secondary yields are now up at very attractive levels for those with the means to purchase, and an appetite to shoulder some risk in this mature global property market,” he adds.
Total returns remained positive in March thanks to the large income component for property, which offsets some of the downside risk in capital movements, the firm notes.
Central London office space continued to outperform the wider market last month, with total returns increasing 0.6% after a 0.5% reading in February, and capital values up 0.2%. The All Offices total returns figure was +0.3%. Values continued to fall for office markets outside London, with capital values for Rest of UK offices down 1.2%, and a fall of 0.7% for the Outer London / M25 market.
Within the retail sector, overall total returns were –0.1% and capital values fell by 0.5%, in a broadly similar performance to the previous month. Shops and shopping centre performance each improved, with total returns of –0.1%. “Although retail warehouse returns were stable, this was a deterioration on the previous month’s outcome,” the firm adds.
The industrial sector was the most stable, with total returns of +0.4% and capital values down 0.1% from February.
There was no overall change in rental values at the All Property level, “with the lack of growth in the economy continuing to impact on demand for property,” the firm adds. But Nick Parker has also noted “a growing sense of optimism for the UK economy, albeit from a low stand point” in most economic indicators, which he says point to eventual improved sentiment for the property sector. “Whilst values may have fallen so far this year, this improved sentiment will start to ease investor fears into Q2 and Q3,” he adds.
