· Industrial sector outperformed in 2017 with returns of 21.0%

· Office sector capital values increased 4.8% over 2017


December delivered the strongest monthly commercial property returns in three years, at 1.4% for the month, according to the latest CBRE Monthly Index. Capital values increased 1.0% overall in December, while rental values increased 0.2% over the month. This strong finish to the year pushed annual total returns for 2017 to 11.8%. The Industrial sector outperformed the other main sectors with returns of 21.0% in 2017, more than double the returns from the Office sector (9.8%) and Retail (8.6%).

In December, the Industrial sector reported capital growth of 2.3%, bringing growth for 2017 as a whole to 14.6%. The regional divergence reported in previous months is particularly evident in the annual results. Industrial capital values in the South East increased 17.4% over the year while Industrials in the Rest of UK reported growth of 9.3%. Capital growth was predominately yield driven. with yields moving in 40bps. Meanwhile rental value growth of 5.7% was the strongest annual performance on record. The South East experienced faster capital growth, rental growth, and yield movement.

Capital values in the Retail sector increased by 0.4% in December, with Shops in the South East outperforming the rest of the sector with growth of 0.8%. Overall in 2017, capital values in the Retail sector increased 2.4%, driven by strong performances from South East Shops (3.4%) and Retail Warehouses (3.1%). Rental values increased 0.6% in 2017.

Office sector capital values increased 1.1% in December and 4.8% over 2017. Over the year, Offices in the Outer London/M25 market outperformed the rest of the sector with capital growth of 6.5%. Rest of UK Offices reported growth of 5.3% while Central London capital values increased 4.1%. Similarly, Outer London/M25 rental values rose 3.0% over 2017, compared with 1.6% in the Rest of UK. Central London rental values decreased -0.6% in 2017.

Miles Gibson, Head of UK Research at CBRE
Despite a cautious and uncertain outlook at the start of 2017, the traditional end-of-year flurry of transactions rounded off a solid year for UK property, with double-digit returns well ahead of consensus forecasts. With a total return of 21.0%, Industrial property had an exceptional year, its best since 2014 and second best in 18 years.
Miles Gibson, Head of UK Research at CBRE