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UK commercial property maintains positive growth in January

January UK Monthly Index snapshot:

• All property values rose by 0.2% over the month, producing total returns of 0.7%.
• Industrial return rebounded in January, and they were the top performing sector, with capital growth of 0.3% and total returns of 0.8%. This was helped by a strong income return.
• All retail sub-sectors recorded positive capital growth in January, albeit at a slower rate than in December. Retail warehouses outperformed with capital growth of 0.3%, whilst shopping centres and shops saw a marginal 0.1% increase this month.
• Rest of UK offices saw a further correction in values after a poor 4th quarter of 2010, and were the only market sub-sector to record negative total returns over the month at -0.1%.
• Overall offices saw positive capital growth of 0.2%, thanks to another strong month for Central London.
• All Property rental values fell marginally over the month, down by 0.1%.

Nick Parker, Senior Analyst at CBRE, said: “After a stronger than expected finish to 2010, all eyes are on the performance for the year ahead, with a strong focus on whether Central London, and prime property in general, can maintain its positive trajectory this year. The results from January’s Monthly Index display a continuation of last year’s trend, with Central London outperforming the other property sub-sectors for the 13th consecutive month. However, there was a noticeable reduction in the margin of outperformance, with Central London total returns outperforming industrials by just 10bp.

With a flattening of yield compression, this year’s performance differential will depend increasingly on the strength and weakness of occupier markets. January saw a further marginal fall in rental values at the All Property level, showing ongoing weakness in most occupier markets. Offices in the regions displayed the weakest performance in January, with rents falling 0.3%, whilst Central London offices continued to see positive growth. This illustrates why there has been and will continue to be divergent performance between Central London and the regions.”

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