Record Breaking All-Property Capital Growth in December Boosts Values to Above Pre-Pandemic Levels
UK commercial property capital values increased 3.7% in December, according to the latest CBRE Monthly Index. This represents the greatest monthly increase in values for all commercial property in the history of the Index and takes the All-property capital value growth for the year to 13.8%. This growth was predominantly driven by exceptional month-on-month performance in the Industrial sector. In December, All-property rental values continued to increase, rising 0.8%, taking annual growth to 2.5%. Total returns were 4.1% over the month making returns to 19.9% for 2021.
In December, Industrials reported capital value growth of 8.4%, by far the largest monthly increase for Industrials, or any other sector, in the history of the Index. This growth occurred in the context of continued strong demand for Logistics assets which has driven record levels of investment in the sector over 2021. In Q4 2021, capital values increased 13.9%, a greater increase than the sector posted in the last two quarters combined. This takes annual growth to 35.6%, making Industrials the strongest performing sector for the sixth consecutive year. Rental values increased 2.3% over the month, 4.1% over the quarter and 9.0% over 2021. December total returns were 8.7%, another record monthly increase, and 41.3% for the year. Industrials South East outperformed over the year with total returns of 43.8%.
Office sector capital values increased 0.6% in December, reflecting capital growth of 0.6% in both Central London and the Rest of the UK. Office sector capital growth in Q4 was 3.9% with annual growth coming to 4.3%, the strongest annual performance since 2017. Office rental values increased 0.2% in December, 0.2% for the quarter and 0.7% for the year. December total returns for the sector were 0.9% bringing returns for 2021 to 9.0%.
In December, Retail capital values increased 1.8%, the largest monthly increase for the sector since March 2010. Capital growth in Q4 was 3.8% and the sector finished 2021 with annual growth of 6.3%. Retail Warehouses was the standout subsector, with capital values increasing 17.2% over the year. Retail rental values declined -0.1% over the month and -1.7% over the year. In 2021, Retail continued to be weakened by Shopping Centres, which reported falls in capital and rental values of -12.1% and -4.9% respectively. In December, Retail total returns were 2.4% taking annual returns to 14.2%.
2021 was a year that exceeded expectations. Industrial sector performance was ground-breaking, with monthly and annual growth rates in excess of anything previously recorded by the Index. Industrial annual capital growth in 2021 (35.7%) was greater than the combined growth over the previous three years (20.7%), clearly illustrating the strength of demand for the sector. Meanwhile the Retail and Office sectors experienced significant recoveries in capital values following the declines sustained during 2020 as a result of the pandemic. Although neither sector has yet reached their pre-pandemic values, this milestone is close for the Office sector. Thanks to these recoveries and explosive growth of Industrial values, All property values have surpassed the levels recorded in February 2020, the start of the pandemic, by 5.5%.