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Uneven recovery continues for UK commercial property

Again it was the office sector that saw the greatest divergence of performance, as Central London continued to outperform all other sectors with values up by 0.6%, while offices in the rest of UK suffered a fall of 0.5%. Elsewhere, retail property saw minor gains while industrial values were flat.

Of the retail sub-sectors, shopping centres were the strongest performer, with total returns of 0.8% brought about by a reversal of the 0.3% capital value decline seen last month, as values grew 0.3%.

Overall, All Retail returns strengthened over the month to 0.7% with capital growth of 0.2%.

Meanwhile, industrial returns weakened in May, with no capital growth leaving total returns at just 0.5% following 0.6% last month. Industrial property remains very much the weakest sector so far this year.

All Property rental values came down by 0.1% in May, with only the City and West End offices seeing positive rental growth in May.

Nick Parker, Senior Analyst, CB Richard Ellis, said: "The City office market has emerged as the clear leader for UK commercial property so far this year, with capital growth of 5.6% in the first five months, and 42.4% since the trough in the market in mid-2009.

"What investors are increasingly finding attractive about offices in Central London is not just the income security afforded by large occupiers, but also that rents are enjoying significant uplift due to a combination of increasing demand for space and a restricted supply following the downturn.

"The weakness anticipated across the retail sectors has so far failed to materialise, with a slow improvement confounding many analysts’ expectations, with values up by 1.5%. As consumers continue to feel the pinch from falling real wages and from Government cutbacks, retail sector prospects are expected to weaken. Regional divergence, as seen in the current office markets, is also expected to occur, with prime locations expected to fare much better than centres with weaker occupier demand."

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