Q3 strongest of the year, led by Industrials where value growth returns to pre-crisis levels
Capital values fell -0.3% for the third consecutive month across all UK Commercial property in September 2020, according to the latest CBRE Monthly Index. This took capital value growth to -0.9% over Q3. Over September, rental values decreased -0.2% making the quarterly fall -0.7%. Total returns were 0.2% bringing Q3 returns to 0.6%.
In September the Retail sector posted a -1.3% fall in capital values. All subsectors reported smaller falls than sector average except for Shopping Centres where values decreased -4.1% over the month. This takes the total Q3 decrease in values for Shopping Centres to -7.7%. Capital value growth for the Retail sector was -2.9% in Q3. Rental values declined -0.9% over the month and -2.1% for the quarter. Total returns were -0.7% in September and -1.1% for the quarter.
The Office sector posted capital value growth of -0.1% over the month. Values fell -0.5% over the quarter. Over Q3 2020 Outer London and M25 Offices proved to be the most resilient subsector with 0% capital value growth, whereas all other subsectors reported declining values. Average Office rental values fell -0.1% in September, totaling -0.4% over Q3. Again, Outer London and M25 Offices was the outstanding subsector with rental value growth of 0.2% over the quarter. Office total returns were 0.3% for the month, making returns for the quarter 0.7%.
In September the Industrial sector saw capital values increase 0.7%. Industrials posted positive capital value growth in each month of Q3 taking the quarterly increase in values to 1.1%. Rental value growth was 0.1% in September and 0.4% in Q3. Over the quarter Industrials South East reported an increase of 1.3% in capital values, almost twice that of Industrials in the rest of the UK (0.6%). However, rental values grew faster in the rest of the UK over Q3, at 0.5% compared to the 0.3% in the South East. Industrial total returns for the month were 1.1%, leading to returns of 2.3% over the quarter.
Q3 has been the strongest of 2020. It reported significantly smaller decreases in capital values at the all property level than previous quarters, leading to positive quarterly total returns for the first time this year. On the current trajectory it now looks possible that 2020 could end with greater total returns and smaller declines in rental and capital values for the year than predicted by the 2020 summer IPF consensus forecast. However, any optimism about the end of the year should be treated with caution due to continuing disruption caused by Covid-19.