After a resilient first quarter, UK commercial property performance was broadly flat in May, with returns now at -0.1%, down from 0.2% in April.
Capital values were down 0.6% over the month contributing to a year-to-date drop of 1.8%.
However, the central London market remained robust, with capital growth of 0.4% and total returns of 0.7% – up from 0.1% and 0.5% in April respectively – according to CBRE’s latest UK Monthly Index.
The strong performance from the central London market was largely due to significant investment in the West End, which delivered capital growth of 0.7%.
A subdued performance in the retail sector was a factor in the flat performance, with offices and industrial commercial property markets largely unchanged over the month.
Overall, it was an outward movement in yields that drove a capital decline of 0.6% at the All Property level, with sentiment now very much in the buyers favour amid the uncertain economic climate.
Nick Parker, senior analyst of economics and forecasting at CBRE, said: “UK commercial property values are slowing, and amid the wider European economy, that is not a surprise.
“The UK, however, remains in a strong position when compared to the eurozone collective, with the uncertainty of the political situation and poor economic data causing large scale flows of capital into the UK “safe haven” in May, pushing gilt yields to unprecedentedly low levels at around 1.55%.
“The UK is to Europe what central London offices are to the wider UK property market – a safe haven for property investors and an ongoing destination for global capital. So far in 2012 nearly £6.3bn has transacted in central London, 50% higher than the same period last year.
There is far greater polarity in regional markets, which have seen a 50% decrease in transactional volumes, with occupier uncertainty and growing void rates putting investors off the risk. In contrast, central London’s West End market is performing extraordinarily well, especially given the current economic climate.”
Bridget.o’connell@estatesgazette.com
