Stable prime rents and yields in Q4 2011 – CBRE
Prime retail occupier markets deteriorated during the final quarter of 2011, says CBRE, but there was no downturn at the headline All Property level, as industrial and office markets continued to improve.
The firm’s UK Prime Rent and Yield Monitor shows that prime All Property rents edged up by just 0.1% year-on-year for the whole of 2011, with offices the strongest sector at 1.7% growth y/y thanks to the momentum seen in Central London – although this continued to slow down during Q4. The weakest regional office markets in 2011 were Wales and the South West, with declines of 3.7% and 1.9% respectively, while the emerging Southbank market saw growth of 4.8% and rents rose 4.3% in the West End, CBRE says.
For the fourth quarter, prime office rents overall rose by just 0.1%, with most regional markets seeing some minor growth although prime rents dipped in the South East and Eastern regions and there was a mixed performance within Central London offices, with a small decline in rents at City offices to let and a 2.1% increase for the Southbank market, the firm notes.
Rental growth for prime industrial properties was 0.3% y/y in 2011 after the market reversed course during Q4 to produce an increase of 0.4%. CBRE says this was thanks to growth in the Midlands, North East and West as supply-constrained markets drove the overall index higher, with rents elsewhere largely flat and only Scottish industrial properties showing signs of weakness.
Within retail, a 1.1% gain for shops for the year – thanks to a 5.9% jump in rents for shops to let in Central London – was offset by a 3.3% decline for shopping centres and a 1.1% fall for retail warehouses. In the final quarter of 2011, all three main retail subsectors produced rental declines of 0.2%. Shops had the largest positive-to-negative swing in Q4 as a result of stalling rental growth in Central London and weakness in regional markets. CBRE noted a large difference in performance within shopping centres, as out-of-town shopping centres saw growth of 1.8% in contrast to the 0.8% decline in rents at shopping centres within towns. Within the retail warehouses subsector, bulky goods stood out with prime centres falling 0.4% while rents were flat at fashion units and open A1 units saw a 0.1% dip in rents.
Prime yields during Q4 were unchanged overall, as investor sentiment remained affected by the eurozone crisis and the weakening UK growth outlook, CBRE said. While this was the story for all main sectors, the firm noted some “subtle outward movements” in some regions, “amid fear that these will be the worst affected should recession hit the UK this year”.
The All Property prime yield moved in by just 11bp during 2011, to 6.1%, after some inward movement earlier in the year. There were marginal reductions in yields for the shopping centre, retail warehouse and office markets, while prime shops and industrial properties saw prime yields flat on average. “Again, regional markets are beginning to show signs of weakness, with a handful seeing yields move out. London markets continue to see yields hold or move in slightly. The All Property prime yield is now 170bp below its previous peak in Q1 2009,” the firm noted.
