Occupier sentiment improving – GVA
GVA says it is seeking gradual improvement in occupier sentiment across many of the UK’s commercial property markets, and expects average UK commercial property rental values to grow by 0.7% this year – barring any further major economic shocks. This compares with a 0.3% increase in 2012. In 2014 the firm expects the rate of growth to double to around 1.5% per annum.
Over the past two years, average rental values have barely moved, GVA notes. It says the subdued occupier markets are hardly surprising, given that the UK’s economic output is still 2.5% below its pre-recession peak and that the recovery has been weak and protracted. Rental values for Central London offices and retail property in Central London have continued to rise, at an annualised rate of more than 5% during the first quarter of this year, and take-up has been well above average. GVA expects this above-inflation rate of rental growth in Central London to be maintained this year. Meanwhile the suburban London offices market has also seen rental growth – up 1.9% in the past year, and the firm notes “signs of cautious optimism” in the wider South East offices market, where rental values have stabilised.
Regional offices markets got off to a good start in 2013 with first-quarter take-up the highest for more than three years. Out-of-town offices markets improved noticeably during Q1. While average rental values for regional office space are still declining, prime headline rents and incentives have been stable in most key centres, GVA notes. The firm also points out that several schemes in key regional city-centre offices markets have begun, or are moving closer to a start date, on speculative and part-speculative bases.
In the retail sector, GVA says that while the LDC’s recent report of a 14.1% UK shop vacancy rate is “a worryingly high figure”, it has at least held broadly stable over the past year despite a number of retailer failures and several programmes of store reductions. Weak consumer spending has continued to affect the high streets and the delay in the rating revaluation “will certainly not help weaker centres”, the firm adds.
The rate of decline in average rental values for industrial property is moderating, GVA says. It fell by 0.6% during the past year and rental values were virtually flat during the first quarter of 2013. The market for industrial property in London is again the strongest in the UK, it points out, with rental value growth in the capital in positive territory for most of the past two years, “and we expect further modest sub-inflation growth this year,” it adds.
