Although the fortunes of the commercial property market fluctuated in early 2011, the statistics published in the CB Richard Ellis monthly index for June indicate an overall capital growth in that period, consistent with the rise experienced in May. The CBRE June figures show the capital values at the All Property level to have increased by 0.2% with a total return of 0.7%. However, this bottom line continues to be somewhat disproportionately influenced by the ongoing prosperity in Central London offices and retail warehouses – a prosperity seemingly not yet enjoyed by other commercial property subsectors or regions of the UK. Central London offices continued to outperform nearly all remaining submarkets, whose values saw either no change or a slight downturn. Equivalent yields were unchanged over the month at 6.6%.
For the third consecutive month Central London offices were the strongest performing commercial property submarket with returns of 1.4%, far ahead of the 0.7% posted by the second placed retail warehouses. Conversely the Outer London/M25 subsector experienced considerably lower office returns of 0.3%, while beyond the capital the figure was 0.5%. Nevertheless, overall office returns of 1% were double those of the retail and industrial subsectors.
Elsewhere June saw a divergence in the retail subsector, with shopping centres and retail warehouses producing somewhat steady 0.6% and 0.7% returns respectively, while high street shops fell to 0.3%. In terms of rental values there was little change from the figures posted in previous months, although a growth of 0.5% in Central London offices contributed, however slightly, to the overall capital growth in June.
Fundamentally, the City office sector has emerged as the clear and consistent leader in the commercial property market in 2011. Furthermore, the demand for such property in London, predicted to increase over the next quarter, indicates that the apparent schism in the office subsector between the capital and the rest of the UK looks set to continue in the near future at least. As David Wylie, Head of Economics & Forecasting at CBRE, notes, ‘the remainder of the market now appears to be lacking momentum, with transaction volumes down and occupier markets showing signs of renewed stress’. The current strength of Central London offices surely cannot offset such losses indefinitely.
