UK commercial property returns 5.8% in 2018 so far
Capital values across UK commercial property were stable in September 2018, according to the latest CBRE Monthly Index. Rental value growth was flat in September.
In the third quarter of 2018, UK commercial property values increased 0.3% overall, the weakest quarterly performance of 2018 so far (Q1 2018: 0.9%, Q2 2018: 0.6%). Rental values increased by 0.1% over the quarter, down slightly from the 0.2% recorded in Q2 2018. Total returns for Q3 of 1.6% at the All Property level bring returns to 5.8% for 2018 so far.
Retail capital values fell -0.6% in September, pulled down by Shopping Centres (-1.0%). Retail Warehouses and Rest of UK High Street Shops both reported falls of -0.6%. Rental values decreased -0.4% over the month. In Q3 2018 capital values in the Retail sector decreased -1.3% (Q2 2018: -1.3%), with Shopping Centres reporting a decrease of -1.7%. Rental values fell -0.7% for the sector over the same period (Q2 2018: -0.5%).
The Office sector recorded capital value growth of 0.3% in September. Central London and Rest of UK Office capital value growth was in line with the sector average while capital values increased 0.4% in the Outer London/M25 submarket. Rental values rose by 0.1% over the month, pulled up by growth of 0.2% in Central London Offices. Office capital values increased 0.7% in Q3 2018. Capital values in Outer London/M25 and Rest of UK Offices increased 1.1% and 0.9% over the quarter. Office rental values rose 0.4% in Q3 2018.
Capital values increased 0.9% in September across the Industrial sector, driven by growth of 1.1% in the South East. Industrials in the Rest of UK reported capital value growth of 0.5% over the month. Rental values increased 0.4% over the month. Industrial capital values rose 2.3% in Q3 2018 (Q2 2018: 3.7%) while rental values increased 0.8% (Q2 2018: 1.1%).
Results for Q3 look steady at the All Property level, however this masks the divergent fortunes of the Industrial and Retail sectors. The aftermath of the EU referendum aside, it has been six years since Retail capital values have been under this much negative pressure. At an All Property level the index shows total returns of 5.8% for the year so far, which is on par with the IPF’s August consensus IPD forecast of 5.8% for 2018 in total.