UK Real Estate Values Fall For First Time In Ages — With Industrial Leading The Drop
Average UK commercial property values fell last month for the first time in more than a year — with the powerhouse logistics sector recording a significant monthly decline.
Capital values decreased 0.5% across all UK commercial property in July 2022, the latest CBRE Monthly Index showed, the first drop in 16 months. Over the month, rental value growth was 0.3%, and total returns were -0.1%. CBRE is the largest valuer in the UK, meaning its index provides an insight into the wider commercial property market.
The industrial sector posted a capital value fall of 1.4% in July, CBRE said. Industrials in the south east and industrials in the rest of the UK reported a capital value falls of 1.3% and 1.7%, respectively. Industrial has not reported negative capital value growth since June 2020, and has seen the fastest growth of any sector for the past five-plus years, with investors paying up to access the sector’s strong rental growth.
The sales of large portfolios in the sector have slowed as investors try to work out whether demand for industrial space will continue in the face of a wider economic slowdown.
So far, it appears it will. Rental values increased 0.7% over the month across the UK, though industrials in the south east posted stronger rental value growth of 0.9%. In July, total returns were down 1.1%.
“After 16 months of consecutive all-property capital value growth, the results of CBRE’s July Monthly Index show that outward yield movement has put pressure on capital value growth,” CBRE UK Head of Research Jennet Siebrits said. “While industrial has shown the greatest fall in capital values, the sector continues to drive rental growth at the all-property level.”
In July, capital values for the office sector decreased 0.1%. Capital value growth was pulled down by outer London and M25 offices, and offices in the rest of the UK, both reporting a decline of 0.3%. Central London offices posted capital value growth of 0.1%. Rental values for the office sector increased 0.1% in July, driven by outer London and M25 offices (0.4%) and the rest of UK offices (0.3%). In July, total returns for the office sector were 0.4%.
Retail capital values were flat in July 2022. Over the month, capital values for retail warehouses increased 0.1%, resulting in the only retail subsector that did not report capital value falls. Standard shops reported a capital value growth of -0.1%. After four months of positive capital value growth, shopping centres posted a decrease in capital values of 0.2%.