Pace of Covid-19 driven value decline eases in the second month of lockdown across all sectors, as rise in yields slows

Capital values fell by -2.1% across all UK Commercial property in April 2020, according to the latest CBRE Monthly Index. This was driven by a 9bps rise in yields and a -0.2% decrease in rental values. Total returns were -1.6%.

Retail continues to report the greatest decreases in value while Offices and Industrials have so far both proved more resilient. Despite this sector divergence, in April there were some similarities in performance: over the month all sectors reported slower decreases in capital values and superior total returns to those seen in March, although rental value trends weakened in April relative to the previous month.

The Retail sector reported a -3.6% decline in capital values in April, compared to -5.1% in March. All Retail subsectors reported less significant decreases in values over April than in March. Shopping Centres reported the largest fall at -5.7% whereas High Street Shops South East fell the least at -2.2%. Retail recorded rental value growth of -0.6%. This figure was pulled down by Shopping Centres where rental values declined -1.1%. Total returns for the sector were -3.0%. High Street Shops South East performed better than sector average with total returns of -1.7%. Overall, Retail yields rose 17bps, following a 22bps increase in March.

The Office sector has continued to show resilience into the second month of lockdown. It recorded negative capital value growth of -1.1% in April, a smaller decline than the previous month (-1.6%). Rental values remained flat at 0.0%. All Office total returns were -0.7%. In April the Office subsector in which values fell the least was West End & Midtown which reported a fall in capital values of -1.0%. On the other hand, Outer London and M25 offices reported the weakest performance with capital values falling -1.7% leading to total returns of -1.3%. Office yields rose 5bps over the month compared to 8bps in March.

As with March, the strongest sector during the Covid-19 crisis has been Industrials. Capital values fell only -0.9%. Industrial Rental values were unchanged at 0.0%. Total returns were -0.5%. Despite the comparative resilience of the sector it should be remembered that April 2020 represents Industrial’s second weakest monthly performance since July 2016. Industrials South East out-performed Industrials in Rest of the UK with capital values decreasing -0.8% and total returns of -0.4%. The rise in Industrial yields was just 3bps in April, from 9bps in March.

Toby Radcliffe, Research Analyst at CBRE said: “CBRE’s April Monthly Index may allay some fears about the severity of impact on valuations of Covid-19 lockdown. Rather than seeing values plummet, April has shown an easing in the rate of decline. Offices and Industrials have remained resilient. However, we should be wary of placing too much weight on a single month’s results, particularly with investment and leasing activity currently on hold.”