Demand for industrial and retail warehousing property has seen all-property prime rents grow by 0.9% in Q2 2021, the strongest growth since Q4 2017, according to CBRE’s latest Prime Rent and Yield Monitor.
All-property yields moved in by 16 basis points over Q2, the greatest fall since Q4 2014.
Industrial prime rents increased by 1.5% in Q2, the largest quarterly increase since Q1 2020. London industrials reported rental growth slightly above the sector average at 1.8%. This compares with 3.1% in the rest of UK (excluding the South East and Eastern England where growth was 0.5% and 0.4% respectively).
Yields for prime industrial property now average 4.4%, with London industrial yields at 3.8%. Yields on London sheds are now 39 basis points keener than central London offices.
Despite the rhetoric around the death of the office, prime rents for offices in Q2 rose by 1.4%, according to CBRE’s analysis, with central London values up by 1.8%. The growth in London was driven by a strong West End (up 3.8%) and Midtown (up 1.7%).
Rental growth was strong across the UK office universe, in fact, with no UK region reporting falling rental values.
From an investment perspective, office yields moved out by 3bp nationally. This was driven by rises in the East and West Midlands, posting 21bp and 11bp increases respectively, as well as a 12bp increase in Yorkshire & Humberside. Conversely, central London yields fell by 1bp, driven by a 7bp prime yield contraction in Midtown.
Retail continued to struggle throughout Q2 2021, but rents declined at a smaller rate than 2020. Shops and retail warehouses both saw prime rental declines of 0.4%; however, bulky goods retail warehouse prime rents increased by 0.4% and rents for retail warehouses in London, the South East and the East increased by 1%.
Retail warehouse yields moved in 28bp to 8.1% during the quarter, while shop yields remained unchanged at 6.8%.
Toby Radcliffe, research analyst at CBRE, said: “Q2 2021 provided further evidence that a rebound in values is underway, posting the greatest increase in rents and decrease in yields at the all-property level in several years. This is an indication of increasing demand from tenants and optimism from investors as lockdown restrictions ease.
“However, the effects are not being felt equally across the sectors, with industrials and offices reporting robust growth in prime rents while retail continues to post declines in value. Nonetheless, there are signs of positivity in the retail market on the investor side, with stable yields for shops and declining yields for retail warehouses suggesting that retail pricing may now be becoming attractive to investors.”
To send feedback, e-mail samantha.mcclary@eg.co.uk or tweet @samanthamcclary or @EGPropertyNews
