Tentative capital and rental value growth continue at the All Property level leading to the strongest quarterly performance since Q1 2018

Capital values increased 0.5% across all UK Commercial property in March 2021, according to the latest CBRE Monthly Index. Over Q1 2021 capital growth was 0.7%. In March, rental values rose 0.1% bringing quarterly rental growth to 0.1%. Total returns for the month were 1.0%.

The Retail sector reported a -0.8% fall in capital values in March and -2.0% fall over Q1 2021. In March Retail Warehouses outperformed with capital growth of 0.6%, the greatest increase in values for the sector since May 2017 and the strongest monthly growth for any retail subsector in over three years. Retail rental values declined -0.4% over the month taking the quarterly decrease to -1.0%. Again, Retail Warehouses pulled up the sector average in March posting an increase in rental values of 0.1%. Retail total returns were -0.1% in March.

In March Office sector capital values fell marginally at -0.1%, taking growth in Q1 2021 to -0.3%. Capital values for Central London Offices were unchanged over the month. Outer London and M25 Offices was the weakest performing Office sub-sector over Q1 with values decreasing -1.7%. In contrast, capital values for West End Offices were unchanged over the quarter, it was the only Office subsector not to record a decrease in values. Office sector rental values were unchanged in March, making quarterly growth 0.2%. Office total returns were 0.3% in March.

Industrials reported very strong capital growth in March at 2.6%. Industrials in the rest of the UK posted record breaking growth at 2.6%, the greatest monthly increase in values for the subsector in the history of the index. Quarterly capital growth for the Industrial sector was 4.6%. Over the quarter Industrials in the Rest of the UK reported growth of 5.1% compared to 4.3% in the South East. Rental growth for the Industrial sector was 0.8% in March and 1.4% over Q1 2021. Industrial total returns were 3.0% in March.

March has been another broadly positive month with new records set by Industrials and promising signs seen from Retail Warehouses. Despite flat Office values and continued declines in some Retail subsectors, Q1 2021 ended strongly, recording the greatest capital growth since Q1 2018. Combined with the imminent relaxation of lockdown restrictions, this should be cause for cautious optimism as we move into Q2.
Toby Radcliffe, Research Analyst, CBRE