UK commercial property returns remained steady in July, at 0.8%, as regional
improvements continued but growth in London slowed, according to the
Capital values at the headline level grew for the third consecutive month, by
0.2%, while income
returns constituted the bulk of returns, at 0.6%. Comparatively, bonds returned
1.0% and equities
6.6 (JP UK Morgan 7-10 Year, MSCI UK).
Returns for the three main sectors remained relatively stable, with offices
industrials 1.0% and retails 0.5%.
The slight gains seen in regional markets, which began in May and gathered
momentum in June,
continued in July. Industrial units around the UK are now seeing capital growth,
as well as office
markets around the South, though offices in the South East saw their growth slow
IPD said that even the retail sector, which continues to deliver the lowest returns off the
back of still negative
capital movements, saw a recovery in regional markets. Standard shop units
across the South
East, Midlands and South West saw rising returns as capital declines either
eased or halted, while
shopping centres and retail warehouses recorded improvements.
Slowing capital growth in central London retail, which dropped from 1.2% to
0.5%, was actually
stopping the sector from delivering positive value growth at the headline level.
All property rental growth, which was 0.1% in June, slipped back down to 0.0%
in July, mainly due
to slowing demand for space in the office markets, where growth last month of
0.4% fell to 0.1%.
This was largely driven by slowing demand for space for Central London
offices. Rental growth in
the City fell 70bp to 0.1% in July, and for Midtown and the West End slowed to
Outside of London, mild improvements in regional demand continued, with most
industrial segments, and retails in the South, seeing flat or slightly positive
growth in rental
Phil Tily, executive director & head of UK and Ireland, IPD, said, “Governor
Mark Carney’s recent
announcement regarding the Bank of England’s future monetary policy should
encourage investors in and towards commercial real estate.
“Unless the UK meets any of his ‘targets’, then interest rates and bond
yields are going to remain
low, and that means investors will continue to look for good value add and
in the real estate sector. The benefits of which are already becoming evident
improvements emerging in the performance of the regional markets.
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