UK prime commercial property rental values increased 0.5% in Q3 2018, down from the 0.7% recorded in Q2, according to CBRE’s latest Prime Rent and Yield Monitor. Excluding the immediate aftermath of the EU referendum, this is the lowest quarterly growth in prime rents since Q3 2012. Prime yields at the All Property level increased slightly over the quarter, ticking up 6bps.
Q3 2018 marked two years of continuous outperformance by the Industrial sector. Prime rental values increased 1.7% over the quarter, down slightly from the 2.1% reported in Q2. For a second quarter, prime North West Industrials outpaced all other submarkets (4.1%). London, South East, and Eastern prime Industrials, which have more often than not been the sectors winners over the last two years, reported growth of 2.0%, 2.4% and 1.7% respectively.
High Street Shop prime rents decreased -0.4% in Q3 2018, following falls of -0.5% in Q2 and -0.3% in Q1. By far the largest fall was reported in Yorkshire & Humberside at -4.9% over Q3. Prime Shop rents decreased -0.6% in the South West and -0.5% in Scotland. Only prime Shops in the Eastern and East Midlands markets reported increases in prime rents in Q3 (0.2% and 0.3% respectively), and in Central London rents were flat. Prime Shopping Centre rents increased just 0.1% in Q3, while Retail Warehouse prime rents were flat.
Office prime rents increased 0.2% in Q3, down from 0.6% in Q2. Central London Office prime rents were flat in Q3 with no submarket reporting any movement in rents. Prime Office rents in the Rest of UK (excl. South East & Eastern) increased 0.7% over the quarter thanks to a 2.5% increase in the South West and increases of 0.9% in both Yorkshire & Humberside and Scotland.
Prime yields rose slightly in Q3, increasing 6bps over the quarter. Once again, stability at the All Property level masked divergence at the sector level.
High Street Shop prime yields rose 13bps over the quarter to reach 5.3%. Central London Shop yields were stable in Q3, while those in the Rest of UK (excl. South East & Eastern) increased 15bps. Prime Shopping Centre yields increased 5bps and Retail Warehouse prime yields rose 25bps.
Prime Office yields were relatively stable in Q3, falling just -1bp. While Central London prime yields increased 1bp, Rest of UK (excl. South East & Eastern) decreased -4bps, driven by movements in Wales (-16bps) and Yorkshire and Humberside (-5bps).
Industrial sector prime yields were also relatively stable, decreasing -1bp over the quarter. The largest falls were recorded in Yorkshire and Humberside (-14bps), South West (-13bps), and North East (-11bps) markets.
Robin Honeyman, Research Analyst at CBRE UK, said: “Our All Property results continue to demonstrate the resilience of prime commercial property. Industrial still leads the way and Offices are solid; only in Retail do our numbers indicate weakness. There are structural changes in shopping patterns which are eroding the amount of space that can be considered prime, therefore the comparative performance of more average Retail is likely to be weaker.”