According to the latest report from CBRE, UK commercial property saw a decline in performance at the start of 2012, with values dropping by 0.2 per cent and total returns of just 0.3 per cent in January.
The report says this is the result of a gradual decline in market sentiment over the past six to nine months, and despite a surge in investment activity in December, a buyers’ market is prevalent.
Last year saw £33.4 billion worth of property exchanged, with around 35 per cent bought by foreign capital however all three sectors, commercial offices, retail and industry, saw values fall by 0.2 per cent with industrial and commercial property offices delivering healthier returns of 0.3 per cent thanks to a bigger income component.
As most sub-sectors saw a gloomy performance this month, the once steady central London commercial office market saw its first decline in values after two and half years of confident growth. The report states: “his has caused a softening in overall commercial office performance this month, as the counter buoyancy effect of a strong central London commercial office market has stalled.”
Both outer London/M25 commercial offices and the rest of the UK commercial offices saw values drop by 0.4 per cent. The former markets have not experienced much of a rise in values since June 2009, with outer London/M25 up just 2.6 per cent whereas the rest of UK values have fallen by 0.9 per cent over this time period. If it was not for central London, which has seen an improvement of 47.2 per cent in values over this time, the overall commercial office market would easily be the worst performing sector.
Like the wider market, all commercial property retail suffered an overall weakening in performance over the first month of 2012, resulting in total returns of 0.2 per cent, down from 0.4 per cent last month, as values fell by 0.2 per cent. This deterioration came during the continuing cooling in investor sentiment, especially evident in commercial property shopping centre performance this month.
Commercial property shopping centres were the weakest sub-sector in January, with capital values falling by 0.5 per cent, bringing neutral total returns. Retail warehouses sustained flat capital values, but saw monthly total returns down to 0.4 per cent from 0.7 per cent in December. High street commercial property shops saw a small improvement in their performance in January, nonetheless still saw values fall by 0.1 per cent with total returns of 0.3 per cent. It is apparent that retail, heavily associated with the consumer economy in the UK, will continue to feel the effect of the austerity measures being implemented, as well as any crisis in consumer confidence brought about by a renewed recession in the UK.
Occupier markets didn’t deteriorate any more, however it still saw rental values in January, down by 0.1 per cent and by 1.2 per cent over the past year. Retail warehouse performance, where space is reflected as being in fairly short supply saw rents stable in January, whilst commercial property shops and shopping centres saw rents fall by 0.1 per cent.
Both occupier and investment markets showed further signs of failing in January, as capital values fell by 0.2 per cent, delivering total returns of 0.3 per cent. This comes after a gradual deterioration in performance over the past four months thanks to prolonged issues surrounding the Eurozone. The industrial equivalent yield moved out to 7.9 per cent in January.
Rental values fell by 0.3 per cent in January, the worst month since September 2010.
