UK commercial property continues steady growth in February

By Bridging Loan Directory -

 

London SkylineCommercial property values in the UK rose by a further 0.6 per cent in February, continuing the steady growth seen in January.

According to the IPD UK Monthly Property Index, values have now risen by 5.7 per cent over the last 10 consecutive months, though they remain over 33 per cent below their 2007 peak levels.

Real estate total returns for the month were 1.1 per cent, boosted by incomes returns of, on average, 0.5 per cent. Comparatively, bonds returned 0.1 per cent and equities 5.0 per cent (JP Morgan 7-10 yr/MSCI UK).

Returns for industrial and office assets were 1.5 per cent and 1.4 per cent respectively, driven by capital growth of 0.9 per cent each. However, low capital growth in the retail sector, at 0.2 per cent, led to more muted overall returns of 0.8 per cent.

Commercial real estate rents rose by a further 0.1 per cent in in February, and have now risen by 0.9 per cent over the last seven months. However, this rental growth has been driven entirely by the office and industrial markets, which have seen rents increase by 3.0 per cent and 1.0 per cent respectively over the same period.

There has been no such recovery in the retail sector, and lacklustre occupier demand means rents have either remained flat or declined each month since May 2008, or 69 consecutive months, leading to a cumulative decline of -10.4 per cent. While expanding businesses are again demanding space in offices and logistical parks, demand remains far more muted for retail space.

Offices and industrial units around the UK started to see improving performance and sentiment when UK economic performance turned a corner last year. While retail returns have improved over the last six months, much of this growth is still restricted to London and the South East.

Standard shops outside of the South East returned just 0.7 per cent in February, as values rose by just 0.1 per cent. Comparably, offices outside of the South East returned 1.4 per cent, driven by a capital growth of 0.7 per cent.

Retail warehouses and shopping centres have fared little better. Retail parks across the UK returned 0.7 per cent in February, while shopping centres outside of the South retuned 0.5 per cent.

Phil Tily, executive director and head of UK and Ireland, IPD, said:

“February saw the same steady growth seen in January continuing, though even more of this was due to regional assets improvements, as returns for London offices slowed slightly. Industrial assets saw a particularly strong month, with their capital growth now equalling that seen in the office market.

“While investor and occupier demand for retail space remains more cautious, it is worth noting that overall, all retail asset types and regions are now seeing capital growth.”