Retail sector capital values increase for the first time in over three years while Office values continued to post small declines in value

Capital values increased 0.5% across all UK Commercial property in May 2021, according to the latest CBRE Monthly Index. This is the third consecutive month to report capital growth of 0.5% at the All Property level. In May, rental values were unchanged from April with 0% growth. Total returns for the month were 0.9%.

In May, Retail sector capital values rose 0.1%. This is the first monthly increase in values for the sector since December 2017. This growth was driven entirely by Retail Warehouses which posted its strongest monthly capital growth in over six years at 0.8%. Meanwhile, High Street Shops posted only a very small decline of -0.1% and capital growth for Shopping Centres was -1.2%. In May, Retail rental values declined -0.3%. All Retail subsectors recorded declines in rental values over the month. Retail total returns were 0.7%.

The Office sector saw capital value growth of -0.2% over May. This reflected negative capital value growth across every subsector, except for City Offices which reported 0% growth. The Office sector reported a -0.1% fall in rental values. Outer London and M25 Offices was the only subsector to report non-negative growth in rental values, down to 0% from 0.1% in April. Office sector total returns were 0.2% in May.

In May, Industrial sector capital value growth was 1.6%, down from 1.8% in April. Industrial sector capital value growth was only slightly stronger in the South East at 1.7% compared to 1.6% in the Rest of UK. Industrial rental value growth was 0.4%. South East Industrials was rental growth of 0.5%, greater than the Rest of UK at 0.3%. Industrial total returns for the month were 2.0%.

May posted solid growth at the All Property level with more evidence of Retail having reached  a trough in values as the sector posted positive capital growth for the first time in over three years. Meanwhile, Office sector values, especially outside of Central London, continued to drift downwards. In May, Retail reported greater capital growth than Offices for the first time since October 2016, illustrating the changing fortune of the sectors. However, whether this marks the start of a new sector hierarchy remains to be seen.
Toby Radcliffe, Research Analyst, CBRE