UK commercial property sectors record weak performance

Total returns were 1.4%, largely driven by a 0.9 % growth in capital values, which have increased by 8.1 % to date during 2014. However, Augusts figure marks a slowdown in the rise of capital values.

Rental growth also slowed over the course of the month, increasing by just 0.1 % overall, despite the continued good performance of the London market.

In the office sector, rental values increased at the fastest rate in the City, where a 1.1 % rise was recorded. The midtown market also performed well with growth of 0.9 %.  On the other hand, the index recorded the second month of flat values in the West End.

Outer London and the M25 experienced a 0.2 % increase but outside the capital rents remained flat, suggesting that there is still excess capacity absorbing demand.

Retail property displayed a similar performance, with capital values continuing to grow slightly while rents remained flat. But this disguises the continuing geographical split in the sector with London and the South East outperforming the rest of the UK by a notable margin.

Over the past three month period, the South East enjoyed a 3.4 % increase in capital values and a 0.6 % rise in rental values. In contrast, the regional markets saw capital value growth of just 1.3%, while rents fell by -0.1 % over the quarter.

Aleksandra Starczynska, of CBRE Research, said:

“Although some rental value growth has been seen in most of the segments for some time now, there is a divergence between regions in terms of the pace of increasing rents.

“It is notable that, particularly for offices and retails, rents in South Eastern England including Central London continued to increase faster than in the rest of the UK.”