CB Richard Ellis latest prime rent and yield monitor reveals the Central London occupier market for both retail and office sectors performed well, with strong positive growth over 2010 in both areas of the market.
In the investment market, Central London continued to attract strong investor demand, causing further downward yield movements in Q4 in both the retail and office sectors, whilst across the regions, yields were flat.
Highlights from the Q4 report include:
• Prime rental values were relatively flat over the quarter, growing by just 0.1 per cent. Over the year, prime rents grew by 0.9 per cent.
• Regional high street shop occupier markets worsened in Q4, with prime rents falling by 0.5 per cent during the quarter, following stabilisation over the previous two quarters.
• Prime shopping centres and retail warehouse rents also saw further weakness this quarter, with prime rents falling by 0.7 per cent and 0.5 per cent respectively in Q4.
• The story improved for prime office markets, with rental growth of 1.3 per cent in Q4, as many of the regions joined Central London in positive growth for the quarter.
• Prime industrial rents were relatively flat this quarter, falling only 0.1 per cent. This was due to weakness in the North West and North East, whilst much of the rest of prime occupier markets were stable.
• The CB Richard Ellis All Property average prime equivalent yield came down by 10bp to 6.2 per cent, thanks largely to continuing strength in Central London markets.
• The positive yield gap between property and gilts narrowed in Q4, moving to 280bp from 340bp in Q3 2010. This reflects a rise in the gilt yield to 3.4 per cent at the end of the year, after a late summer low of under 3 per cent.
Peter Damesick, EMEA Chief Economist for CB Richard Ellis, said: “Central London offices have outstripped the rest of the market, with the City in particular distinguishing itself with a 20% rebound in prime rents in 2010. Central London retail has continued to perform well after showing remarkable resilience through the downturn. Both offices and shops in Central London reflect the way that the distinctive drivers and dynamics of the capital’s economy and occupier market have re-asserted themselves in the recovery. This in turn is fuelling strong investor interest.
“The further weakness seen in high street occupier markets this quarter comes as little surprise, with consumer markets set to be badly affected going into 2011. Tax rises, benefit cuts, inflation fears, and ongoing unemployment worries are all likely to impact on consumers’ propensity to spend this year, which in turn will shape occupier decisions going forward.”
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