- The Industrial sector outperformed for the fifth quarter with 2.3% increase in prime rents

- Prime yields moved in slightly across UK commercial property, decreasing -4bps

UK prime commercial property rental values increased by 0.8% in the final quarter of 2017, according to CBRE’s latest Prime Rent and Yield Monitor. At the All Property level, prime yields moved in -4bps over the quarter. Prime rents grew by 3.1% over 2017 as a whole, down from growth of 3.7% in 2016, but still above trend.

Industrials outperformed for the fifth consecutive quarter in Q4 2017, with prime rental values increasing 2.3%, up from Q3’s 1.7% but down from the 3.3% and 2.7% reported in Q1 and Q2 respectively. The Eastern (3.5%), London (3.2%), and South East (2.6%) markets outperformed those in the rest of UK. The Industrial sector also recorded the largest increase in prime rents over the whole of 2017, at 10.4% - the sector’s first double-digit rise since 1990.

Prime rents on High Street Shops increased 0.4% in Q4 2017 and brought annual growth to 2.7% for the sector in 2017. Quarterly growth was driven by increases of 1.2% in Suburban London and West Midlands, followed closely by Eastern Shops with growth of 1.0%. Shops in the South West reported a decrease of -3.5% in prime rents over the quarter.

Office prime rents increased by 0.3% overall in Q4. While increases of 3.0% and 1.3% were reported in the South West and Eastern markets, Central London prime rents decreased -0.1%. Over 2017, prime rents in the Office sector increased 0.7%, although Central London prime rents fell -2.9% over the year.

Prime yields decreased slightly in Q4 2017, moving -4bps on average over the quarter and bringing the total yield movement for 2017 to -18bps. Yields were stable for prime High Street Shops, Shopping Centres, and Retail Warehouses. Overall, the Office sector reported little fluctuation in prime yields, ticking down -2bps, although Offices in the West Midlands and South West reported prime yields falling -18bps and -16bps over the quarter. The Industrial sector reported the biggest yield movement of the quarter with prime yields falling -12bps over the quarter. Industrials in both the East Midlands and West Midlands led the sector with falls of -22bps and -27bps respectively.

Miles Gibson, Head of UK Research at CBRE
Despite the hesitant outlook at the start of the year, 2017 demonstrated the resilience of the prime commercial property sector with positive growth in prime rents across the main sectors. Yields are low by historic standards, but the gap to Gilts is still fairly high which should cushion the sector from the effects of interest rate normalisation.
Miles Gibson, Head of UK Research at CBRE