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CBRE: UK prime CRE nudged up 0.4% in Q3, driven by industrials and offices

At the All Property level, prime yields moved out 6bps over the last quarter. The Industrial sector reached its eleventh consecutive quarter of outperformance in Q3 2019, with prime rental values increasing 1.7%. After recent strong performance in the North West and North East, in Q3 2019 the East and West Midlands outperformed with prime rents increasing 3.3% and 3.9% respectively.

London (2.1%) and Scotland (2.0%) also reported increases above the sector average. At the national level, Industrial prime yields rose slightly for the first time since Q3 2016 (2bps). Only North West Industrials reported a fall in prime yields in Q3 (-6bps).

At the UK level, High Street Shop prime rents fell -0.8% in the third quarter of 2019. This was a deceleration from the -1.1% reported in Q2. Shops in the North East reported the largest decrease, reporting a fall of -4.0%. The next biggest fall was -3.4% in Yorkshire & Humberside. Shopping Centre prime rents fell ‐0.8% over the quarter, while Retail Warehouse prime rents decreased 1.7%. All Shop prime yields rose 14bps in Q3. Prime Shopping Centre yields increased 13bps over the quarter and Retail Warehouse prime yields rose 23bps.

Prime rents in the Office sector increased 0.7% in Q3 2019, up from the 0.4% reported in Q2. Overall results were pulled up by East of England (1.4%), Central London (1.1%), North East (0.9%) and Yorkshire & Humberside (0.8%). Prime yields for the Office sector were stable in Q3 (1bp).

In the East and West Midlands, the Q2 decrease in prime yields was reversed, increasing 36bps and 7bps respectively. In Q3, Scotland (10bps) and Wales (9bps) also reported increases.

Robin Honeyman, Senior Research Analyst at CBRE UK, said:

 “Q3 results across the main sectors continued the trends seen in 2019 so far. A very slight easing of the downward pressure on Retail prime rents meant All Property rental growth returned to positive territory (Q2: -0.2%). However, the -0.8% decrease for Shops last quarter is still the third biggest fall for the sector in the last 5 years.”

james.wallace@realassetmedia.com