Office rents hold steady 12th July 2016

Commercial property rents remained steady in June as occupiers continued to seek out office space, despite uncertainty in the run up to the EU referendum, new research shows.

Rents grew by 0.2%, which matched the trend for the yet to date, according to CBRE’s latest monthly index. However, growth slowed for the first half of the year as a whole, falling to 1.1% compared with 1.7% in the same period last year.

Capital values also lost steam in June, rising by 0.1% compared with 0.2% in May. Growth for the first half of the year stood at 0.6%, which was significantly behind the 4.1% rise in capital values reported during the first six months of 2015.

Total returns were also lower, falling from 6.7% in H1 2015, to 3.0% in H1 2016. This lower return partly reflects an increase in stamp duty land tax in March. But the 0.6% total returns for the month matched returns seen almost every month of the year to date.

Miles Gibson, head of research at CBRE UK, said: “Overall, rents and capital values continued to grow in June, with the industrial sector in particular showing strong growth in a month of significant uncertainty. Clearly, capital value growth has slowed, but occupier demand has remained high across the country, pushing up all property rental growth as fast as any other month this year.”

Rents across industrial units rose by 0.4%, which was equal to its best monthly performance in 2016, followed by UK offices, which saw rents rise by 0.3% in June. This was an improvement on the 0.2% of both April and May, and in line with trend so far this year.

However, capital value growth slowed slightly from 0.4% to 0.3%. London offices mirrored this trend, with rents up by 0.3% compared with 0.2% in May, while capital value growth slowed from 0.6% to 0.5%, producing total returns in June of 0.8%.

Not all areas of the London office market enjoyed rental growth. Values in West End & Midtown offices were flat, down from 0.1% growth in May, while capital value growth also cooled to 0.2% from 0.5% in May.

Offices in the City of London also experienced muted growth in the month, with rental growth of 0.2% and capital value growth of 0.1%, down from 0.6% and 0.3% respectively in May.

Meanwhile rents in the retail sector enjoyed a slight rental growth of 0.1% in June, above trend for the year so far, but capital values, which had been flat in April and May, fell by -0.2%. Total returns in the sector were 0.3%, compared with 0.5% the month before.

Gibson said: “These figures reflect CBRE valuations carried out in the days immediately following the referendum vote, but July’s monthly index will give a much clearer indication of how monthly-valued assets have been affected by the uncertain environment for commercial property in the aftermath of the Brexit decision. In the meantime, CBRE’s 30 June valuations incorporated a formal Valuation Uncertainty clause.”