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Central London bucks UK commercial property trend

Total returns have remained marginally positive, highlighting the benefit of the large income component for real estate which offsets some of the downside risk in capital movements.

Despite the improved performance of Central London office last month, the wider UK property market continues to experience weaker trends, with values down and total returns fairly neutral.

The correction in values was most acute in the office markets outside Central London. Rest of UK offices saw capital values reduce by 1.2%, with a decline of 0.7% reported in the Outer London / M25 market. The retail sector overall saw broadly

similar trends as in the previous month, with values falling by 0.5%, while industrial was the most stable performer, with values down only 0.1% over the month.

Occupier markets saw no overall change in rental values at the All Property level, with the lack of growth in the economy continuing to impact on demand for property.

Nick Parker, Senior Analyst of Economics & Forecasting at CBRE, said: "There is no doubt that a prevailing weak economic climate for the UK is hampering the commercial real estate sector, with values faltering as a result of investors being cautious over occupier market prospects.

"Whilst it is important to focus on the wider market, certain markets and sectors still remain buoyant, namely prime Central London. Indeed, the gap between prime and secondary has been heightened by this caution and drive for secure incomes.

However, secondary yields are now up at very attractive levels for those with the means to purchase, and an appetite to shoulder some risk in this mature global property market.

"Most economic indicators are pointing to a growing sense of optimism for the UK economy, albeit from a low stand point, and transactional volumes are still healthy. These positive ‘shoots’ point to eventual improved sentiment for the property sector, and whilst values may have fallen so far this year, this improved sentiment will start to ease investor fears into Q2 and Q3."

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