Business Money
®
Investment Property: Prime Rents and Yields
Offi ces
Rent £/sq ft Q3 .09
Rent £/sq ft Q3 .10
% change
Yield %
Yield %
Q3 .09 Q3 .10
London, West End 79.00 82.50 4.40 5.25 4.10 London, City
London, West End 42.00 50.00 19.00 6.50 5.35
London, Docklands 35.00 36.50 4.30 6.50 5.50 Croydon Bristol Cardiff
Birmingham Manchester Leeds
Newcastle Glasgow
Edinburgh
25.00 25.00 0.00 7.25 6.85 27.50 26.00 -5.50 7.00 6.15 20.00 21.00 5.00 7.50 6.75 27.00 27.50 1.90 6.85 6.00 28.50 28.50 0.00 6.85 6.00 27.00 24.00 -11.10 7.00 6.25 20.00 19.00 -5.00 7.35 6.65 28.50 27.00 -5.30 7.00 6.00 28.00 27.50 -1.80 6.85 6.00
Retail
Rent £/sq ft Q3 .09
Rent £/sq ft Q3 .10
% change
Yield %
Yield %
Q3 .09 Q3 .10 500.00 550.00 10.00 4.75 4.25
Kingston-upon-Thames 325.00 325.00 0.00 5.50 4.75 Croydon Bristol Cardiff
Birmingham Nottingham Manchester Leeds
Newcastle Glasgow
Edinburgh
240.00 210.00 -12.50 6.75 5.85 280.00 260.00 -7.10 5.75 5.35 260.00 250.00 -3.85 6.35 5.25 280.00 280.00 0.00 6.25 5.25 200.00 200.00 0.00 6.25 5.50 215.00 230.00 7.00 6.25 5.25 250.00 220.00 -12.00 6.50 5.35 270.00 270.00 0.00 6.25 5.50 250.00 260.00 4.00 6.50 4.85 175.00 218.50 24.90 6.75 5.50
Industrial
Rent £/sq ft Q3 .09
Source: CB Richard Ellis
Rent £/sq ft Q3 .10
% change
Yield %
Yield %
Q3.09 Q .10
London, Heathrow 12.50 12.50 0.00 7.00 6.50 London, Dartford Southampton Bristol Cardiff
Birmingham Nottingham Manchester Leeds
Newcastle Glasgow
Edinburgh
7.50 7.50 0.00 7.25 6.85 7.50 7.25 -3.30 7.75 7.25 7.75 7.75 0.00 7.50 6.85 6.00 6.00 0.00 8.00 7.50 5.75 5.25 -8.70 7.75 6.85 4.75 4.50 -5.30 8.00 7.25 5.75 5.75 0.00 7.75 7.00 5.75 5.50 -4.30 7.85 7.15 5.25 5.25 0.00 8.35 7.85 6.25 6.00 -4.00 8.00 7.25 6.50 6.00 -7.70 7.75 7.25
A view of prime commercial property, Q3 2010 – CB Richard Ellis P
rime rental growth for commercial property was marginally positive
this quarter, growing by 0.2%. This completes a year of stagnant rental values, with prime occupier markets still struggling across many regions. Over the year rental values have grown by 0.9%, mainly thanks to a strong rebound in central London office and shop markets, where occupier demand has strengthened. The disparity between prime central London and other regions was again apparent this quarter with many regions still experiencing weakness. The downward shift in prime yields came to an end this quarter, with the All Property prime yield unchanged at 6.3%. From their peak in Q1 2009, prime yields have come in by 150bp, with investors taking advantage of the correction in property values, and the sizeable yield gap with gilts. The property/gilt yield gap widened
further in Q3 following a 40bp reduction in gilt yields; the yield gap is now 340bp. Under normal circumstances this would represent a buying opportunity for investors, but growing doubts over the economy have led to a more cautious mood.
Offices
Office markets saw the strongest rental growth this quarter, growing by 1.5%.
Over the past year rental values are up 6.9%, largely thanks to the strong growth seen in central London office markets. The City of London was the strongest market, experiencing quarterly growth of 4.2%, taking its annual growth to 19.2%. In the majority of regions rents were stable in Q3 although there were residual declines in the south west, north west and Yorkshire and Humberside. On an annual basis, rental values across most of the regions are only marginally down.
Overall, prime office yields moved in by 7bp this quarter, ending the quarter at 6.2%. This reduction was solely due to further yield hardening in central London office markets. Many regional markets saw a modest reversal with outward yield movements typically of around 5bp.
Retail
Prime shop rents have been relatively flat for a year now, with rental values up by 0.1% over the year and up 0.2% this quarter. This signals more stable market conditions for most high street shop markets, with only four regions continuing to see rental falls this quarter. Central London saw the strongest performance again this quarter, growing by 2.3%.
Rents in prime shopping centres fell
by 1.1% this quarter following the 0.5% fall in Q2. This continued weakness in the
Business Money
Nick Parker, senior analyst, CB Richard Ellis, e-mail:
nick.parker@
cbre.com
November/December 2010 77
sector was due to in-town centres, which saw rents fall by 1.7%. Reflecting more robust occupier demand, out of town centres experienced marginally positive growth in Q3.
Retail warehouse rents fell by 0.3% in Q3, with bulky and fashion parks seeing similar falls, but with more stable rental conditions for open A1.
All retail sub-sector yields were flat
this quarter, as investor interest subsided after five quarters of downward pressure. Shopping centre yields moved to 6.1% due to rounding whilst retail warehouse and high street shops stayed at 6% and 5.8% respectively.
Industrial
Prime industrial rents fell by 0.3% in Q3 following further occupier uncertainty in the sector. This leaves rents down by 2.4% over the year and 6.1% since the peak in Q1 2008. However, the overall quarterly fall was due to declining rents in only four regions, with the West Midlands the worst affected, down by 2.4%. In most other regions rents were stable, with only the north west seeing positive growth, albeit marginal at 0.1%. Prime industrial yields were unchanged
again this quarter at 7.4%.
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