All UK commercial property experienced a weaker performance in August 2014, according to the latest CBRE Monthly Index.
Total returns for All Property were 1.4%, mainly driven by the capital value growth of 0.9% over the month. So far this year, capital values increased by 8.1%, resulting in total return of 12.5% over the year to date.
However, rents increased by 0.1% over the month and 1.3% over the last eight months.
August 2014: CBRE UK Monthly Index Snapshot:
All Property Office Retail Industrial Other
Total Return 1.4 1.6 1.0 2.3 1.2
Capital Value Growth 0.8 1.2 0.5 1.8 0.7
Rental Value Growth 0.1 0.2 0.0 0.3 0.0
Positive capital value growth has been seen across all main sectors for over a year now, however it was notable that the increase in capital values slowed down in August. On the rental side, the Office and Industrial sectors recorded the highest rental value growth of 0.2% and 0.4% over the month respectively.
Within the office sector, rental values in the City increased at the fastest rate, growing by 1.1% in August. Rents for Midtown offices also continued to improve and experienced significant rental value growth of 0.9% over the month. In contrast, offices in West End recorded second month of flat rental values.
Outside of London, rents were flat for the Rest of UK or with a small increase of 0.2% recorded for Outer London/M25. There is an interesting parallel between the real estate market (capital value growth without rental value growth) and the wider UK economy (employment growth without wage growth). The continued lack of rental value growth outside London suggests there was substantial excess capacity within occupiers’ estates which has been absorbing their demand for space.
The Retail sector also has shown a similar pattern. Whilst capital values continued to grow in August for all retail segments (albeit at a slower rate than in the previous month) rents remained flat for retail warehouses and only slightly increased for shopping centres.
Overall high street shops recorded no rental value growth, but there is a strong geographical split between the South Eastern and the Rest of UK. It is notable that standard shops in London, South East and Eastern England have been outperforming the rest of the UK. Over the last three months, South East recorded 3.4% capital value growth and 0.6% rental value growth. Capital values for the rest of UK increased by 1.3% over the last 3 months, with rents falling by -0.1% over the quarter.
Aleksandra Starczynska, CBRE Research, said: “Although some rental value growth has been seen in most of the segments for some time now, there is a divergence between regions in terms of the pace of increasing rents. It is notable that, particularly for Offices and Retails, rents in South Eastern England including Central London continued to increase faster than in the rest of UK.”