Central London outperforms wider commercial property market

Central London outperforms wider commercial property market

West End of London

UK commercial property performance was broadly flat in May, with returns now at -0.1%, down from 0.2% in April, according to CBRE’s latest UK Monthly Index.

However, the central London market remains robust, with capital growth of 0.4% and total returns of 0.7% (up from 0.1% and 0.5% in April respectively.

The strong performance from the central London market was largely due to significant investment in the West End, which experienced capital growth of 0.7%. The central London commercial property market remains the strongest performing sub-sector in the UK.

CBRE said 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.

“UK commercial property values are slowing, and amid the wider European economy, that is not a surprise,” said Nick Parker, senior analyst of economics and forecasting at CBRE. “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 c1.55%.

“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 £6.3 billion 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.”