While prime retail occupier markets saw some deterioration this quarter, there was no headline decline at the All Property level, as industrial and office markets continued to see some improvements, at 0.4% and 0.1% respectively. This meant that over the year, prime rents at the All Property level saw a modest increase of 0.1%, with Central London shops and offices by far the strongest performers during 2011.
Investor markets remain cautious and, despite a late surge in investment activity seen in December, prime yields stayed flat in Q4 at 6.1%. This was the story for all of the headline sectors, but there were some subtle outward movements in some of the regions, amid fear that these will be the worst affected should recession hit the UK this year. Despite the slowing sentiment towards the end of the year, the All Property prime yield did see some inward movement earlier in the year when competition amongst purchasers was still strong, moving the headline yield in 10 base points over the year.
Highlights from the Q4 report include:
* Prime rents were flat in Q4, and are up just 0.1% over the past year;
* The retail sector saw the worst performance this quarter, with all three sub-sectors seeing prime rental levels slip backwards by 0.2%, as retailer defaults continue and fears over consumer spending ensue;
* After a strong third quarter, the high street saw a reversal in fortunes in Q4 as regional rents started to slip backwards, causing the headline All Shops figure to fall 0.2% in Q4. This reversal was largely due to Central London rents pausing, after a strong year where rents grew 5.9%;
* Prime shopping centres also saw rents fall by 0.2% in Q4, and again the split between in and out of town centres continued, with the latter seeing positive growth of 1.8% while in town centres saw rents fall by 0.8%;
* Retail warehouses, saw rents fall by 0.2%, with bulky the worst affected with rents down 0.4% in Q4, while fashion centre rents were flat;
* Prime office markets saw rents fairly stable this quarter, up 0.1%, as further weakening demand pressures in Central London were offset by some mild improvements in some for the regional office markets;
* Prime industrial rents grew this quarter by an impressive 0.4%, as supply constrained markets in the North West and the Midlands drove the overall index up. The majority of regions saw prime rents stable while Scotland saw a minor contraction in headline rents;
* The CBRE All Property average prime equivalent yield was flat at 6.1%, with all sectors recording no movement;
* The property/gilt yield gap increased considerably in Q4 to 411 base points, due to the sharp decline in gilt yields which moved to 2.0% from 2.4% in Q3.
Nick Parker, Senior Analyst for CBRE, said: "Given the growing level of pessimism surrounding the UK economy’s outlook, prime occupier and investment markets are showing signs of relative resilience at present. We expect prime to significantly outperform secondary property going ahead, especially as overseas investors remain focussed on owning a significant chunk of the UK property market.
"A potential sticking point could come if and when exchange rates reverse, making UK property more expensive to overseas currencies, should this happen a significant driver could fall away."
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