UK PRIME COMMERCIAL PROPERTY RENTS CLIMB 1.0% IN Q2, BOOSTED BY RENTAL GROWTH IN CENTRAL LONDON SHOPS
Rents across the UK’s prime commercial property crept up by 1.0% in the second quarter of 2016, boosted by near-record levels of rental growth in Central London shops, according to the latest CBRE’s Prime Rent and Yield Monitor. In a quarter characterised by uncertainty around the EU Referendum, prime yields remained stable, implying flat capital values overall.
Rents grew significantly across several sectors during the quarter, with high street shops and industrial rents rising 2.8% and 1.4% respectively. Central London saw the greatest rental growth among high street shops driving up overall shop rents, increasing by 8.9% over the last quarter, some way ahead of the 0.2% rental growth in shops across the rest of UK. A third of the tracked locations in Central London saw rent increases over the quarter, showing that retailers are still willing to pay premium rents for the limited stock available in the most sought after streets of the capital.
Prime yields remained almost flat during the quarter, rising by 4bps to remain close to 5.4%. Yields from prime shops and shopping centres remained unchanged over the three months, while the office sector also saw little yield fluctuation, ticking up 1bp. Industrials and retail warehouses were the main drivers of the slight uplift in overall yields in Q2.
The second quarter wasn’t exactly business as usual for the UK’s political and economic landscape, but despite the heightened uncertainty in the run up to the referendum vote, the commercial property sector demonstrated strong underlying health, with yields largely unmoved in core markets.
In particular, ample demand for commercial space pushed up rents nationwide, especially in prime London retail, which saw some of the highest rental growth on record. The capital is open for business, and remains an attractive proposition for occupiers seeking to locate in a world leading global city, and investors and landlords capitalising on this desire. Although the shadow cast by Brexit means rental growth is unlikely to grow at this pace next quarter, the UK is well positioned to capitalise on the demand for new space.