UK commercial property returns slip in summer

Photo:   MongFish

Total returns on investment in the UK’s commercial real estate slipped this summer, according to new figures.

Datafrom CBRE shows that returns fell from 1.3 per cent in June 2015 to 1.2 per cent in July 2015. CBRE attributes the dip to weaker performance from Central London.

Overall rental and capital values continued to grow in July, but did so at a reduced rate, with rental values growing at 0.3 per cent, a slower pace than the 0.5 per cent recorded in June 2015. Capital growth was 0.7 per cent, also down from 0.9 per cent in the previous month.

The office sector was one of the biggest movers in July. While the market recorded another month of good performance, after a strong second quarter, July’s returns fell from 1.8 per cent in June to 1.3 per cent. This was largely down to the Central London market, where total returns fell to 1.1 per cent from 1.7 per cent the month before. Total returns were also down in Outer London/M25 and the rest of UK, but not to the same extent.

Despite this monthly fall, rental value growth in the Central London office market have reached a post-recessionary high of 9.65 per cent in the last 12 months – higher than the previous peak in the year to October 2011 of 7.13 per cent. Central London offices now have the highest rental growth of all UK commercial property markets over the last year.

Investment into the Central London market has grown from £2.4m in Q1 2015 to £4m in Q2, notes Michael Haddock, Senior Director.

“The high level of competition for Central London assets means that investors – both local and foreign – are increasingly looking at opportunities in the rest of the UK and activity has been growing at an even faster rate outside London,” he comments.

High street shops and industrials also recorded positive rental growth, but with some marked geographical divergence across the UK. In both sectors, the South East outperformed the rest of the UK.