Total returns slip in July but property investment continues to grow rapidly


July’s fall was mainly a result of weaker performance from Central London, but despite this monthly fall, over the last twelve months rental value growth in Central London offices has now reached a post-recessionary high of 9.65 per cent.

Overall rental and capital values continued to grow in July, but did so at a reduced rate, with rental values growing at 0.3 per cent, slower than the 0.5 per cent  for June, and capital values growing at 0.7 per cent, down from 0.9 per cent the previous month.

The office sector was one of the biggest movers in July. While the market recorded another month of good performance, after a strong second quarter, July’s returns fell from 1.8 per cent  in June to 1.3 per cent. This was largely down to the Central London market, where total return fell to 1.1 per cent from 1.7 per cent the month before. Total returns were also down in Outer London/M25 and the rest of UK, but not to the same extent as in Central London.

Overall, however, the Central London office market is booming. Annual rental growth (for the twelve months to July 2015) is now at a post-recessionary high of 9.65 per cent, overtaking the previous peak in the year to October 2011 of 7.13 per cent. Central London offices now have the highest rental growth of all UK commercial property markets over the last twelve months, driven by 12.48 per cent growth in the City, and 10.52 per cent growth in Midtown.

Michael Haddock, Senior Director of CBRE, said “Despite the slight dip in July, office rents and capital values in Central London market have been growing strongly over the last year. As a result of this performance, investment into the market has grown from £2.4m in Q1 2015 to £4m in Q2.

“The high level of competition for Central London assets means that investors – both local and foreign – are increasingly looking at opportunities in the rest of the UK and activity has been growing at an even faster rate outside London.”

High street shops and industrials also recorded positive rental growth, but with some marked geographical divergence across the UK. In both sectors, the South East outperformed the rest of the UK. Rental value growth for high street shops increased from 0.2 per cent to 0.5 per cent in the South East, while rental values for the rest of the UK were flat for the month. Similarly, the industrial sector recorded 0.7 per cent rental value growth in South East up from 0.5 per cent the month before, while the growth rate fell in the rest of the country from 0.4 per cent to 0.2 per cent.