David Wylie, Head of UK Economics and Forecasting at CB Richard Ellis, commented:
“This month’s returns confirm the growing mood of reflection among investors. With a significant re-rating of UK property already behind us, with values up 18.6% from their lows in the middle of last year, investors are looking for more compelling signs of recovery in occupier markets before committing further to the market. The significant exceptions to this broader picture are the Central London office and retail markets, where there is already evidence of income growth and investor appetite still appears to be strong.”
Although the majority of sub-sectors slowed further over the month, and returns were generally lower, shopping centres and Rest of UK offices regained some momentum. There was little to separate the returns of the two main sectors, with offices slightly ahead of the retail sector at 0.9% compared with 0.8%. Industrial performance lagged, with returns of 0.6%.
Central London offices were again the best performing sub-market with a total return of 1.0%, which helped to boost the wider sector return, while Outer London / M25 and Rest of UK offices trailed on 0.5% and 0.7% respectively. For the second successive month, Outer London / M25 Offices saw marginal reductions in capital values, falling by 0.1% in July and August.
Retail property performance improved over the month, rising to 0.8% in August from 0.7% the previous month. Both shopping centres and retail warehouses performed broadly in line with the retail sector average, while High Street shops lagged with a return of 0.6%. Of the retail sub-markets, High Street shops have seen the largest slide in rental values in the year to date with a fall of -2.4%, which partly explains their relative under-performance.
Industrial returns were again the weakest of the three main sectors in August, and year to date returns of 8.7% lag considerably behind the 12.1% for retails and 14.3% for offices.
All Property rental values were stable over the month, although the 0.5% growth in Central London offices largely offset weakness elsewhere.
The CB Richard Ellis Monthly Index showed:
– All Property total return was 0.8% in August, with annual returns of 26.3%.
– All Property capital growth was 0.3% in August, with values up 7.5% since the start of the year.
– The strongest performing market sub-sector over the month was again Central London offices, which recorded total returns of 1.0% and capital growth of 0.6%.
– All Property rental values were flat over the month, but down 1.0% in 2010.
– All Property equivalent yields were unchanged for the third successive month at 6.9%
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