Investment returns on industrial property beat all other commercial sectors for the month of August, with total returns of 1.4%, compared to a market average of 1.0%, according to the latest CBRE Monthly Index. This strong performance was driven by market leading growth in both capital values at 0.9% and rents at 0.6%.
Despite ongoing strength in the industrial sector, total returns across the UK commercial property market dipped in August, falling from 1.2% in July to 1.0%. The fall was largely due to capital growth slowing from 0.7% to 0.6%, while both rent and income return continued to grow at 0.3% and 0.4% respectively.
Miles Gibson, Head of UK Research, CBRE, said: “Strong returns in the industrial and logistics sectors, as well as in grade A regional offices, are being kept buoyant by a pervading imbalance between demand and supply. This is particularly true in the industrial sector, where newly developed office space is quickly snapped up by occupiers, limiting availability, and pushing up both capital values and rents.”
Despite slowing growth across the market in August, baseline performance remained strong, with average total returns of 1.0% sitting slightly behind a monthly average of 1.1% for 2015, bringing the year-to-date return on commercial property investments to 9.2%. This growth trajectory is on track to hit CBRE’s 13.8% forecast for the full year, and in line with IPF consensus, but it falls some way short of the 19.7% recorded by CBRE in 2014. It is still likely however to overtake the total returns of 11.5% seen by the end of 2013.
Miles Gibson continued: “The UK’s commercial property market is forecast to provide double digit returns in 2015, and is proving especially attractive to investors seeking an income return. Those focused on the industrial and office sectors are currently benefiting most of all.”
The sectors performing best for investors so far this year are industrials and offices, which have returned 11.9% and 11.7% respectively, with total returns on offices in London’s Midtown reaching 13.6% by the end of August. In the office sector, capital values continued to grow by 0.8% in August, down from 1.0% in July while total returns were 1.2%.
