Despite a positive end to the year 2020 posts a -7.6% decline in capital values and total returns of -2.2%

Industrials reports largest monthly capital growth on record

UK commercial property capital values increased 0.3% in December, according to the latest CBRE Monthly Index. This represents the first-time values have risen at the all property level since October 2018. Capital value growth for the year was -7.6%. In December, rental values were flat at 0.0%, the first time in 10 months that a decrease has not been posted, taking annual growth to -2.5%. Total returns were 0.8% over the month making returns -2.2% for 2020.

In December, Industrials reported capital value growth of 2.7%, the largest monthly increase for the sector in the history of the index. Over Q4 2020 capital values increased 6.1%, a greater increase than the sector posted in all of 2019. This takes annual growth to 4.8% making Industrials the strongest performing sector for five consecutive years. Rental values increased 0.9% over the month and 2.8% over 2020. December total returns were 3.1%, another record-breaking monthly increase, and 9.9% for the year. Industrials South East outperformed over the year with total returns of 11.4%.

Office sector capital values increased 0.1% in December, the first increase in values since February 2020. This was driven by Central London Offices where values rose 0.7% over the month. Q4 posted capital growth of -0.6% for the Office sector with annual growth coming to -4.2%, the weakest annual performance since 2009. Office rental values were flat at 0.0% in December and -0.5% for the year. December total returns for the sector were 0.5% bringing returns for 2020 to 0.5%.

In December Retail capital values weakened a further -1.0%. Capital growth in Q4 was -2.8% and the sector finished 2020 with growth of -17.8%. Rental values declined 0.7% over the month and -8.3% over the year. In 2020 Retail was weakened by Shopping Centres, which reported falls in capital and rental values of -30.0% and -13.6% respectively, the subsector’s weakest ever annual performance. In December Retail total returns were -0.4% taking annual returns to -11.6%.

2020 was a year of remarkably different sectoral performance, reporting the greatest divergence between the strongest and weakest performing sectors in the index’s history (at 21.5 percentage points). Throughout the year the Retail and (to a lesser extent) Office sectors were challenged by the external pressures imposed by the Covid crisis. Meanwhile, the Industrial sector thrived. The sector responded to 2020’s challenging environment posting a strong annual performance including December’s record-breaking capital growth and total return. Consequently, 2020 ended on a positive note with all property capital value growth tentatively moving back into positive territory for the first time in over two years. However, with the UK starting 2021 in a third national lockdown the extent to which the industrial sector can continue to bolster the all property performance remains to be seen.
Toby Radcliffe, Research Analyst, CBRE