UK commercial property total returns slow to 0.5% in Q3, pushing year to date performance to 1.9%

Capital values across UK commercial property decreased -0.4% in September 2019, according to the latest CBRE Monthly Index, while rental values were flat. Total returns were 0.0%

In the third quarter of 2019, UK commercial property capital values decreased -0.9% overall, the fourth successive negative quarter and the weakest of 2019 so far (Q1 2019: -0.6%, Q2 2019: -0.6%). Rental values increased by 0.1% over the quarter, up slightly from the -0.1% recorded in Q2 2019. Total returns for Q3 of 0.5% at the All Property level bring returns to 1.9% for 2019 so far.

Retail capital values fell -1.7% in September, pulled down by Shopping Centres (-2.6%) and Retail Warehouses (-1.8%). Rental values decreased -0.6% over the month. In Q3 2019, capital values in the Retail sector decreased -3.6% (Q2 2019: -2.2%), with Shopping Centres reporting a decrease of -4.6%. Rental values fell -1.2% for the sector over the same period (Q2 2019: -0.8%).

The Office sector recorded capital value growth of 0.4% and total returns of 0.8% in September, out-performing Industrials for the third month this year. Central London offices out-performed the sector average with an increase of 0.6%. Rest of UK Offices pulled down the sector average, increasing 0.1%. Rental values rose by 0.4% over the month, pulled up by growth of 0.6% in Central London Offices. Office capital values increased 0.6% in Q3 2019 while Office rental values rose 1.1%.

Capital values increased 0.3% in September across the Industrial sector pushing total returns to 0.7%. Industrials in the South East reported capital value growth of 0.4% over the month, compared with growth of 0.1% in the Rest of UK. Rental values increased 0.3% over the month. Industrial capital values rose 0.7% in Q3 2019 (Q2 2019: 0.6%) while rental values increased 0.8% (Q2 2019: 0.7%). Total returns in Q3 2019 were 1.9% (Q2 2019: 1.8%).

Robin Honeyman, Research Analyst at CBRE UK
All Property returns in the third quarter were again dampened by continued poor performance in the Retail sector where returns were down on the previous two quarters and on the same period last year. However, performance in the Office and Industrial sectors remains steady. Our index shows total returns of 1.9% for the year so far, compared to the IPF’s August Consensus Forecast of 0.9% for 2019 as a whole.
Robin Honeyman, Research Analyst at CBRE UK