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Commercial

Commercial real estate on the up 201014

Q4 2014

Offices have again become one of the leading markets in the commercial sector, according to the IPD UK Monthly Property Index.

Offices have again become one of the leading markets in the commercial sector, according to the IPD UK Monthly Property Index.

Across the wider sector real estate value rose 1.7% in September, significantly up on the 1.4% return for August.

Capital values increased by 1.2% as income return remained stable at 0.5% for the month. September’s return represents the second-highest monthly total of the year, eclipsed only by the June figure.

Offices

Offices and industrials were the leading sectors in the market during September, both returning gains of 1.9% over the month.

Retail was just behind with 1.4%. Retail has been consistently chasing these sectors since the start of the capital value recovery in May 2013.

Offices also delivered the strongest growth in capital values in September at 1.4%. They were followed by industrials at 1.3% and retail at 0.9%.

This re-established the pattern seen through most of 2014, with the rise in office values generally eclipsing that of industrials, while industrials have offset some of this advantage with their higher income return.

Driving factors

A first rise in retail rents since the start of the current recovery was a factor in the rise, but yield compression was the main driver of values.

Values have now risen by 14.1% over 17 months of consecutive growth, and are less than 29% off the peak levels of 2007.

The recovery in values that began in May 2013 is now re-asserting itself after a slight moderation over the traditionally quieter summer months.

The UK commercial real estate return of 1.7% for the month compared favourably with the performance of other asset classes in September, bonds returning -0.3% and equities -2.9%.

Regions

Central London shops were the strongest performing market, having recovered from a blip in August to return 3.6% in September. As expected, this has been the stand-out location for UK retail through most of the current recovery.

Other regional hot spots in September included outer South East and outer London offices, which returned 2.6% and 2.4% respectively over the month, while London also represented the strongest industrial region, returning 2.3%.

Outer London and outer South East offices saw the strongest rental growth in September at 1.2% and 1% respectively. What is more impressive is that all retail regions and property types saw increases - the first time this has happened during the current recovery.

Phil Tily, Executive Director & Head of UK and Ireland, IPD, said that the figures confirm that strong growth is continuing across the UK commercial property market, primarily on the back of positive sentiment on the part of both domestic and overseas sources of capital.

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