UK Prime Rents and Yields
MarketView
CBRE Global Research and Consulting
Q3 2013
RENTS - RISERS
82
YIELDS - FALLERS
377
RENTS - FALLERS
37
YIELDS - RISERS
40
ACCELERATING FALL IN YIELDS
RECOVERY IN REAL ESTATE MARKET SPREADING ACROSS THE COUNTRY
At the national level commercial property rents grew by
0.6% over the last quarter continuing the stronger rental
growth seen in the last two quarters. The average prime
yield fell, decreasing by 12 bps over the quarter.
Table 1: Nominal Prime Rental Growth (%)
Q /Q
Y/Y
All Property
0.6
2.6
It was particularly notable that the number of locations
where yields are falling – making a positive contribution to
capital value growth – has increased sharply over the last
few quarters and has also spread more widely across the
country. In contrast, in the vast majority of locations
monitored rental values are stable, with increases largely
confined to London and the South East.
Shops
0.5
1.9
Shopping Centres
-0.1
3.0
Retail Warehouses
-0.2
-0.4
Offices
1.8
5.5
Industrials
0.1
0.0
Offices were the best performing sector in terms of rental
growth in Q3 2013, as has been the case for each of the
last five quarters. There are now very few office locations
where rents are falling (just four in Q3 2013) and the
increasing number of locations recording where rising rents
contributed to an average of 1.8% growth in prime rents
over the quarter
The rate at which prime yields are falling across the country
continues to accelerate. Overall, the average prime yield
dropped by 12 bps in Q3 to 6.08%. The biggest fall was
recorded in the industrial sector, where the average prime
yield fell from 7.41% at the end of Q2 2013 to 7.19% at the
end of Q3.
Source: CBRE
Table 2: Prime Yields (%)
Q1 2013
Q2 2013
Q3 2013
Q/Q bps
Y/Y bps
All Property
6.25
6.20
6.08
-12
-20
Shops
5.90
5.88
5.76
-12
-11
Shopping Centres
5.71
5.68
5.64
-4
-21
Retail Warehouses
6.03
6.03
6.05
2
2
Offices
6.16
6.10
5.91
-19
-30
Industrials
7.54
7.41
7.19
-22
-31
Source: CBRE
Chart 1: Prime Property Yield Gap (%)
6
Property Yield Gap
Chart 2: Annual Rental Growth and Yields (%)
10
10 Year Gilt
5
8.00
7.00
5
4
6.00
5.00
0
3
4.00
-5
Source: CBRE, Macrobond
All Property Rents (LHS)
2.00
All Property Yield (RHS)
1.00
Q3 2013
Q4 2012
Q1 2012
Q2 2011
Q3 2010
Q4 2009
Q1 2009
Q2 2008
Q3 2007
Q4 2006
Q1 2006
0.00
Q3 2004
Q3 2013
Q1 2013
Q3 2012
Q1 2012
Q3 2011
Q1 2011
Q3 2010
Q1 2010
Q3 2009
-15
Q1 2009
0
Q3 2008
-10
Q1 2008
1
Q3 2007
1
3.00
Q2 2005
2
Source: CBRE
© 2013, CBRE Ltd
-15
Offices
Industrial
-20
Q3 2013
Q1 2013
Q3 2012
Q3 2011
Q1 2011
Q3 2010
Q1 2010
Q3 2009
Q1 2012
Shopping Centres
-25
Source: CBRE
Chart 4: Central London Prime Office Submarket
Rental Growth(%pa)
30
West End
Mid Town
20
City
Docklands
10
0
-10
-20
-30
Q3 2013
Q1 2013
Q3 2012
Q1 2012
-40
Q3 2011
Another notable feature of the results is the polarization of
the retail sector. The sector includes the individual locations
with both the largest increases in rental value and the
biggest falls.
Retail Warehouses
Q1 2011
In contrast to high street shops, shopping centres and retail
warehouses recorded a downward trend in rental values,
mainly due to falling rents in London, South East and
Eastern and flat rents in the other regions.
Shops
-10
Q3 2010
This quarter All Retail performance was driven by high street
shops in Central London that recorded rental value growth
of 2.0% for the quarter. Rents for the Rest of UK excluding
London, South East and Eastern again recorded a fall,
decreasing by -0.4% over the quarter.
-5
Q1 2010
Retail
0
Q3 2009
Over the last 12 months the results have shown positive
trend, with improving rental growth in each segment except
for West Midlands (-0.3%), North West (-0.4%) and Scotland
(-0.8%) continuing the pattern that started last quarter.
5
Q1 2009
Rents in the rest of the UK remained broadly flat. Thames
Valley continued to grow, increasing by 1.6% over the
quarter. In contrast, the North West and Scotland recorded
a slight decline in rents.
10
Q1 2009
Central London offices were once again the main driver of
the strong performance in the office sector. Over the
quarter, they recorded the highest rate of rental growth at
2.3%, with growth of 7.1% over the last twelve months.
Within the segment, offices in the West End and Midtown
were the ones with the highest rental growth in the third
quarter, 3.4% and 5.5% respectively.
Chart 3: Annual Prime Rental Growth
by Sector(%pa)
Q3 2008
Offices
Q3 2008
Q3 2013 UK PRIME RENTS AND YIELDS | MarketView
PRIME RENTS
Source: CBRE
Industrial
Rents in the industrial sector remained largely unchanged
over the quarter, with flat rents in London and very small
rate of growth for the Rest of UK regions. The highest rental
value growth was for industrials in South West and in
Scotland at 1.1% over the quarter. The only region with
falling rents was the North West with rental value growth of 2.0% in Q3 2013. Rental values were unchanged in 93% of
the industrial locations monitored.
Chart 5: Regional Prime High Street Rental
Growth (%)
Central London
South East
20
South West
West Midlands
15
North West
Scotland
10
5
0
-5
-10
Rents
Q3 2013
2
Q1 2013
23
Q3 2012
4
Q1 2012
Fallers
Source: CBRE
Q3 2011
161
Q1 2011
446
Q3 2010
214
-25
Q1 2010
Stable
9
Q3 2009
39
-20
Q1 2009
Risers
Industrials
Q3 2008
2
-15
High Street
Shops
31
Offices
Source: CBRE
© 2013, CBRE Ltd
Chart 6: UK All Sector Average Prime Yields (%)
Shops
Retail Warehouses
Industrial
10
9
Shopping Centres
Offices
8
Offices
While in Q3 2012 Central London was the only region to
experience a fall in yields this has now spread to almost all
regions in the office sector. Across the office locations
monitored, 30% recorded falling yields and only 1 location
had a rising yield.
Prime yields in Central London offices continued to drop,
declining by 19 bps in the third quarter. They currently stand
at an average of 5.9% and at the lowest level since Q1
2008. Offices in West End and City saw quite significant
decreases and made the biggest contribution to Central
London performance.
7
6
5
Q3 2013
Q1 2013
Q3 2012
Q1 2012
Q3 2011
Q1 2011
Q3 2010
Q1 2010
Q3 2009
Q1 2009
Q3 2008
Q1 2008
Q3 2007
Q1 2007
Q3 2006
4
Source: CBRE
Chart 7: Prime Office Market Yields (%)
West End
South East
West Midlands
Yorks & Humber
10
Regional offices continued the downward trend that has
started in the previous quarter. The highest fall in yields was
recorded for North West and Scotland, 34 and 33 bps
respectively over the quarter. The key provincial cities also
recorded quite marked falls in yields (33 bps in Q3). The
only uplift in yields was for Wales, 20 bps over the quarter.
Q3 2013 UK PRIME RENTS AND YIELDS | MarketView
PRIME YIELDS
Retail
City
South West
North West
Scotland
In the retail sector, the fall in yields continued to spread
across the UK, reaching almost every region in Q3.
9
The average prime high street retail yield in Central London
has now fallen to a remarkable 3.7%, declining by 18 bps
over the quarter. In the rest of UK, North West and East
Midlands shops showed the biggest downward yields
movements of 26 and 20 bps respectively. Average prime
Shopping centres and retail warehouses yields remained
unchanged this quarter.
8
7
6
5
Q3 2013
Q1 2013
Q3 2012
Q1 2012
Q3 2011
Q1 2011
Q3 2010
Q1 2010
Q3 2009
Q1 2009
Q3 2008
Q1 2008
Q3 2007
Q1 2007
Q3 2006
4
The average prime yields are falling for retails, however
there are far more retail locations recording rising yields
than in the case in the other sectors.
Industrial
Source: CBRE
Overall in the UK, the industrial sector recorded the biggest
fall in average prime. Nearly all of the UK regions recorded
a drop in yield, but the largest were for the North West (36
bps) and London (34 bps) over the quarter. The only
segment with no decrease in yields was North East, where
yields remained flat.
Chart 8: Industrial Market Yields (%)
10
9
The declining yields were recorded in 101 of the 145
industrial locations monitored.
8
7
1
Yields
High Street
Shops
63
Stable
82
162
43
Fallers
188
19
101
6
5
South East
North West
© 2013, CBRE Ltd
Q3 2013
Q1 2013
Q3 2012
Q1 2012
Q3 2011
Q1 2011
Q3 2010
Q1 2010
Q3 2009
Q1 2009
Q3 2008
Q1 2008
Q3 2007
Q1 2007
Source: CBRE
Offices
Risers
4
Q3 2006
3
London
South West
Scotland
Source: CBRE
Industrials
1
3
Q3 2013 UK PRIME RENTS AND YIELDS | MarketView
4
CBRE UK PRIME RENT AND YIELD MONITOR
Rental Growth (%)
Y/Y
2.60
Yield Shift (%)
All Property
All Shops
Central London
Suburban London
South East
Eastern
South West
East Midlands
West Midlands
Wales
North West
Yorkshire & Humberside
North East
Scotland
Rest of UK (excl. London, SE and Eastern)
0.52
1.96
0.35
1.01
-0.69
0.76
0.00
-0.23
2.31
-1.40
-0.63
-2.01
-0.87
-0.37
All Shopping Centres
In Town
Out of Town
London, SE and Eastern
Rest of UK (excl. London, SE and Eastern)
-0.10
0.03
-0.45
-0.60
0.01
2.99
2.94
3.13
2.22
3.67
-0.97
-1.21
-0.13
0.00
-0.92
5.68
5.68
5.62
5.43
5.80
5.64
5.65
5.58
5.38
5.77
-0.04
-0.04
-0.04
-0.05
-0.03
-0.21
-0.24
-0.12
-0.25
-0.11
All Retail Warehouses
Bulky
Fashion
Open A1
London, SE and Eastern
Rest of UK (excl. London SE and Eastern)
-0.18
-0.38
-0.11
-0.13
-0.54
0.00
-0.39
-0.52
-0.31
-0.50
-0.93
-0.20
-2.33
-4.39
-1.39
-2.75
-3.45
-2.09
6.03
6.64
5.79
5.92
5.88
6.28
6.05
6.61
5.82
5.99
5.93
6.30
0.02
-0.03
0.03
0.07
0.06
0.03
0.02
-0.03
0.03
0.07
0.06
0.03
All Offices
West End
City
Mid Town
Docklands
Southbank
M25 North
M25 South
Thames Valley
Key Provincial Cities
Out of Town
Central London
Suburban London
South East
Eastern
South West
East Midlands
West Midlands
Wales
North West
Yorkshire & Humberside
North East
Scotland
1.77
3.41
0.23
5.50
0.00
0.00
0.00
0.13
1.57
-0.17
-0.15
2.29
1.68
0.07
0.00
0.00
0.00
0.00
0.00
-0.56
0.62
0.00
-0.41
5.47
10.93
1.83
11.32
0.00
0.00
0.45
2.89
5.39
0.73
2.28
7.14
5.27
2.18
1.91
0.29
0.67
-0.29
0.39
-0.36
3.51
2.34
-0.80
-1.14
-2.55
-1.93
-0.81
-2.18
-0.30
-1.25
-0.66
0.15
-0.51
-0.18
-2.09
0.37
-0.73
-0.28
-0.81
0.83
-1.02
-1.48
-0.04
-2.63
-2.82
-0.59
6.10
4.79
4.87
5.47
5.31
5.43
8.35
7.56
7.04
6.61
8.07
4.90
6.92
7.79
8.10
7.91
7.95
7.96
7.95
8.66
8.50
8.85
7.82
5.91
4.56
4.72
5.47
5.16
5.28
8.26
7.35
6.84
6.28
7.84
4.71
6.74
7.59
7.99
7.81
7.70
7.72
7.97
8.32
8.42
8.85
7.49
-0.19
-0.23
-0.15
0.00
-0.15
-0.15
-0.09
-0.20
-0.21
-0.33
-0.23
-0.19
-0.18
-0.20
-0.11
-0.10
-0.25
-0.24
0.02
-0.34
-0.07
0.00
-0.33
-0.30
-0.31
-0.50
-0.03
-0.40
-0.51
-0.08
-0.28
-0.46
-0.37
-0.28
-0.37
-0.44
-0.20
-0.13
-0.03
-0.44
-0.47
0.12
-0.19
0.10
0.38
-0.32
All Industrial
London
South East
Eastern
South West
East Midlands
West Midlands
Wales
North West
Yorkshire & Humberside
North East
Scotland
0.08
0.00
0.00
0.00
1.11
0.80
0.69
0.00
-2.00
0.00
0.00
1.05
0.01
0.00
-0.09
0.00
-0.39
0.80
1.37
-4.34
-2.00
0.67
0.93
1.05
-0.95
-0.23
-0.56
-1.08
-0.65
-1.34
-1.93
-3.45
-1.87
-1.32
-1.85
-0.72
7.41
6.48
7.25
7.49
8.30
7.48
7.32
8.78
8.40
8.04
8.45
8.87
7.19
6.14
7.02
7.29
8.21
7.42
7.24
8.62
8.05
8.02
8.45
8.81
-0.22
-0.34
-0.23
-0.20
-0.09
-0.07
-0.09
-0.16
-0.35
-0.03
0.00
-0.05
-0.31
-0.59
-0.28
-0.29
-0.08
-0.29
-0.14
0.28
-0.21
0.00
0.07
-0.05
Source: CBRE
Last 5 Years (% pa)
-1.48
Actual Yields (%)
Q2 2013
Q3 2013
6.20
6.08
Q/Q
0.61
1.94
-2.54
12.63
6.55
RENTAL
VALUES -1.13
0.74
1.14
-3.75
-3.00
-3.14
-1.91
-8.06
-2.17
-5.07
-5.26
-5.54
-1.37
-9.80
-5.53
-6.49
0.89
-5.41
-2.01
-7.65
-0.87
-3.61
-2.54
-6.10
Q/Q
-0.12
Y/Y
-0.20
5.88
3.91
5.94
6.17
6.47
6.31
7.16
6.84
7.54
7.15
6.67
6.96
6.70
6.85
5.76
-0.12
3.73
-0.18
YIELDS**
5.83
-0.10
6.07
-0.10
6.45
-0.02
6.32
0.01
6.96
-0.20
6.82
-0.02
7.49
-0.05
6.89
-0.26
6.67
0.00
6.96
0.00
6.70
0.00
6.78
-0.07
-0.11
-0.39
-0.09
-0.07
0.05
0.11
-0.09
0.21
0.08
0.05
0.32
0.28
0.12
0.14
© 2013, CBRE Ltd
Q3 2013 UK PRIME RENTS AND YIELDS | MarketView
CONTACTS
For more information about this Local MarketView, please contact:
EMEA Research and Consulting
Michael Haddock
Senior Director
EMEA Research and Consulting
CBRE
Henrietta House
Henrietta Place
London W1G 0NB
t: +44 207 182 3274
e: [email protected]
Aleksandra Starczynska
Analyst
EMEA Research and Consulting
CBRE
Henrietta House
Henrietta Place
London W1G 0NB
t: +44 207 182 2149
e: [email protected]
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a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric
forecasting and consulting solutions to real estate investors and occupiers around the globe.
Disclaimer
5
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5