They have been absent from the commercial property market for five years but now rent reviews are making a return, according to CBRE.
After a long period of stagnant rental growth there are signs that rents are finally beginning to move in a northerly direction, which means rent reviews are back on landlords’ agendas.
Stelios Demetriou, a senior surveyor in CBRE’s lease consultancy team in Birmingham, said: “Since the collapse of Lehman Brothers in late 2008 and the subsequent global recession, there has been little or no rental growth. Instead, the focus has been on tenant retention, not rent appreciation. But now that’s all about to change.
“In the office and industrial property sectors, increased demand from occupiers coupled with a shortage of available space is putting upward pressure on rental values.”
During the second quarter of the year, rental values for all UK commercial property continued to increase, according to CBRE’s UK Prime Rents and Yields Index. Yield shift also contributed to capital value growth, with values for all property increasing by 3.8 per cent during the quarter and 6.8 per cent in the year to date.
Prime rents in the office sector increased by 1.2 per cent over the quarter and 7.9 per cent year-on-year. The average prime yield remained at 5.6 per cent in Q2, with capital values seeing a 2.5 per cent increase over the quarter and 17.2 per cent over the year.
In the West Midlands, prime office rents grew by 0.21 per cent in Q2 and 1.25 per cent year-on-year, fuelled by increased occupier demand and limited Grade A stock. With no new space due to be delivered before 2016, there is a greater likelihood that rents will rise further.
During the second quarter, prime office yields fell by 0.05 per cent to 7.22 per cent, with capital values seeing an upward shift of 0.9 per cent.
It is a similar picture in the industrial sector, where limited supply is putting upward pressure on rents. The West Midlands saw one of the biggest rental increases in Q2 at 1.3 per cent, compared to the national average of 0.15 per cent.
Average prime shed rents in Birmingham are now circa £5.50 per sq ft, with some developers quoting £6 per sq ft.
Yields, however, remained stable at 6.63 per cent, with capital values for prime industrial property increasing by 1.25 per cent over the three months to the end of June.
Mr Demetriou said: “Landlords and investors will be rubbing their hands at the prospect of improving rental and capital values.
“For the last five years, occupiers have been in the driving seat but now the pendulum is swinging in favour of landlords. Rent-free periods and generous incentives may well be a thing of the past. Instead, tenants, particularly those who signed in 2009 and whose five-year rent review period has arrived, should make provisions for a potential rent increase.”