Q2 reports the year’s weakest performance but trends in value declines ease further in June

Capital values fell by -0.7% across all UK Commercial property in June 2020, according to the latest CBRE Monthly Index. This took capital value growth to -3.8% over Q2 and -6.9% in the first half of 2020. In June rental values decreased -0.3%, making the quarterly fall -1.0%. June total returns were -0.2% bringing Q2 returns to -2.4%.

The Retail sector reported a -1.4% decline in capital values in June. Shopping Centres continued to pull down the Sector average, posting a fall of -2.4% over the month. Over Q2 2020 Retail capital values fell -6.6% taking the decrease in the first half of the year to -12.9%. This is the largest 1st half fall in the sector since H1 2009. Rental values declined -0.8% over the month and total returns were -0.8%. Total returns over Q2 were -4.9%

The Office sector posted capital value growth of -0.2% over the month. Capital values fell -1.9% over the quarter and -3.1% in the first six months of 2020. Over Q2 2020 West End & Midtown Offices was the most resilient subsector with a decrease of -1.7%. Average rental values for the Sector fell -0.1% in June, the first negative growth of the year. Q2 reported a fall in Office rental values of -0.2%. Total returns were 0.2% for the month, edging into positive territory for the first time since February. Returns for the quarter were -0.8%.

In June Industrials continued to demonstrate the greatest resilience of all sectors. Capital values fell by only -0.1% in June. Capital growth amounted to -1.3% over the quarter and -2.3% over the first half of the year. Industrial continues to be the only sector to see rental values growing. In June rental values increased 0.2% driven by Industrials South East. Rental growth in Q2 2020 was 0.3%. Total returns for the month were 0.3%, leveling out at 0% over the quarter.

CBRE’s June Monthly Index has confirmed that overall Q2 2020 saw a larger decline in rental and capital values than Q1. This was the case for all sectors except Retail where capital values fell slightly more during the first quarter. This is perhaps not surprising considering the length of time spent under strict lockdown conditions. However, there is reason to hope that Q2 represents the trough in Covid-19 related value decreases. June has seen a continuation of the easing in capital and rental value declines, and as more non-essential businesses re-open their doors throughout July further gains in Q3 seem possible.
Toby Radcliffe, Research Analyst, CBRE