RENTAL VALUE GROWTH PICKS UP ACROSS ALL SEGMENTS Total returns for All Property were 1.6% in September, driven by capital value growth of 1.2% over the month. Significant improvements were seen in the rate of rental value growth across all main sectors in September. All Property recorded rental value growth of 0.3% over the month, the strongest rate since December 2008. While the other property sectors saw rental values start to pick up some time ago, the retail sector has lagged behind. As a whole the retail sector recorded rental value growth of 0.3% in the month. Strong capital value growth in the UK means that total returns at the ‘All Property’ level in the first three quarters of 2014 have already exceeded those for 2013 as a whole. This is also true of all the segments monitored in CBRE’s monthly index, with the exception of West End offices.
- Total take-up across all the regions and the Thames Valley & M25 has reached 3.99m sq ft, almost exactly on par with the same period last year and 20% above the average take-up of 3.3m sq ft during the ‘downturn’ period of 2008-2012; - Professional service firms have dominated take-up so far, accounting for 22% of floorspace transacted; - The ever diminishing pool of prime Grade A supply has led to developments in almost all regional centres either having already started or on the cusp of commencing, with site clearance underway in some instances; - The year has seen a vast improvement in the regional capital markets. With £1.5bn in volumes invested into the office sector this is already more then we saw transacted in the whole of 2011, 2012 and 2013 and is quickly approaching the ten year annual average of £1.8bn. - Capital growth we have seen this year has been driven entirely by yield compression. Outside of London and the South East there has been very little underlying rental growth in the regions.
Take-up in Central London in August 2014 was 900,000 sq ft, a decrease of 29% on the previous month. Central London availability fell by 2% 12.51 million sq ft in August, 22% below the 10-year average. Under offers in Central London increased by 32% to 4.53 million sq ft, the highest level since November 2000. The largest deal of the month saw Havas acquire 158,000 sq ft at 3 Pancras Square at King’s Cross Central.
Take-up during the first half of 2014 maintained a steady momentum for units of 100,000 sq ft and above, with a total of 6.9 million sq ft was taken during the first half of 2014. Design and build transactions have been an even more dominant sub group within the sector accounting for 81% of all take-up on new buildings. Supply levels continue to decline with a total of 19.7 million sq ft of logistics space available in ready to occupy units across the UK, down 16% over the last 12 months. Supply levels have fallen the fastest in Yorkshire and the North East, down 30% in the year to the end of June 2014. This follows the acquisition over the last 12 months of the largest of the remaining 2009 era speculative warehouses. Developers have returned to speculative development, with a number of 100,000 sq ft + units being developed in the South East and M1/M6 corridors. A total of £984bn of investment purchases of logistics properties were completed during H1 2014, as cash inflows into retail property funds continue to buoy the market. Institutional buyers and property companies have dominated purchasing activity in H1, together accounting for 88% of transactions by value.
SOUTH EAST OFFICES HIT THE ‘SWEET SPOT’ IN TERMS OF RENTAL GROWTH AND YIELD SHIFT Rental values for all UK commercial property continued to increase in Q2 2014, albeit at a slightly slower rate than in the previous quarter. Yield shift also contributed to capital value growth, with the average prime yield falling by a further 17 basis points over the quarter to stand at 5.7% at the end of Q2 2014. Capital values at the ‘All Property’ level increased by 3.8% over the quarter. The office sector is presenting an interesting pattern of performance. The Central London market is showing strong rental growth, however, yields have stabilized and showed very little movement in Q2. In contrast markets in the rest of the South East and Eastern regions are generally performing well in terms of both rental value growth and yield shift. The combination of increasing rental values and falling yields means that this part of the UK is currently showing the strongest capital value growth for the office sector. The other significant trend is the contrasting yield movements in the segments of the retail sector. Yields for both Shopping Centres and Retail Warehouses fell sharply in Q2 2014. In contrast the fall in the average prime yield for high street retail units was generally much smaller