UK commercial rents remained stable in July

Rental values across the UK’s commercial property market remained steady last month, the latest figures show. 

But despite stable rents, capital values, as a widely expected, fell by -3.3%, led by a decline in the City of London, the latest CBRE Monthly Index reveals.

Heightened economic uncertainty, especially for financial services firms, hit offices in the City of London, reducing capital values by -6.1%. But overall, capital value decline in the central London office market was the same as for offices across the UK, at -4.1%.

Capital values in the retail sector fell -3.6%, but the industrial property segment was more insulated with a lower fall of -2.2% for the month, reflecting the supply-demand imbalance in the sector.

Rental value growth fell to zero in July from 0.2% the month previous, holding steady across office and retail sectors - including central London offices - and growing by 0.1% in the industrial sector.

Downward pressure on rental values came from standard shops within the retail sector, which fell by -0.3% overall, and -0.6% outside the South East.

Miles Gibson, head of research at CBRE UK, said: “Capital value growth was always expected to falter at some point during 2016, as global economic uncertainty cast doubt on the likelihood of the strong growth seen in previous years persisting for much longer. The Brexit vote has now crystallised that expectation, though it is not the only driver of it.

“It’s reassuring to see rental values have held firm in the face of this heightened uncertainty, a positive sign that the UK occupier market remains strong, sustained by record levels of employment, and low borrowing costs.

“It will be some time until we understand the full impact of the Brexit decision, but the Bank of England’s base rate cut and more quantitative easing are likely to be supplemented by a similarly supportive fiscal stance in the autumn.”

CBRE UK Monthly Index Snapshot: July 2016