Central London in April 2016 Take-up in Central London for April 2016 was 0.5m sq ft, 65% lower than the previous month and significantly lower than the 10-year average of 1.1m sq ft. Availability increased by 5% to stand at 12.8m sq ft, but remained below the 10-year average of 14.7m sq ft. Under offers increased by 14% in April to stand at 3.5m sq ft, ahead of the 10-year average of 2.8m sq ft. The largest letting of the month saw Charles Stanley acquire 46,500 sq ft at 55 Bishopsgate, EC2.
Commercial property prime rental growth at post crisis high Rental values for UK prime commercial property grew by 1.4% in the first three months of 2016. The average prime yield for All Property remained relatively flat in the quarter, up slightly from 5.3% to 5.4%. All Property estimated capital values grew by 1.2% during Q1. Prime Industrial property led the way, with rental growth increasing to 2% in the first quarter, the third steepest quarterly increase the sector has seen since 2001. Rental values for prime Central London offices increased by 2.6% over the quarter, driven by the strong performance in the City (4.6%) and Docklands (5.4%).
Commercial rents hold steady in line with previous years Commercial property rental value growth is in line with the rates seen in 2014 and 2015. Rental values for All Property grew by 0.8% in the first four months of the year. Capital value growth is considerably lower so far in 2016 than in 2015, currently at 0.2% compared to 2.2% for the same point last year. Total return for All UK Property recovered from -0.1% in March 2016 to 0.6% in April 2016.
Economic outlook Steady and sustainable growth at or around trend rates for the next two years, supporting occupier demand A recovering Eurozone providing support for growth even as interest rates rise The key risk to global growth would be an unexpectedly sharp slowdown in emerging market economies (such as China) Investment Outlook Growth in investment volumes likely to flatten off, with 2016 and 2017 seeing investment at around the 2015 level Yields likely to be largely stable, but continue to fall slightly in those market segments which are later in the cycle Political Outlook A referendum on membership of the EU could overshadow real estate prospects London's Mayoral Election will deliver a Mayor opposed to Heathrow's expansion Growth outside London is likely to be spurred by the Chancellor's Northern Powerhouse initiative Office Strong employment growth will underpin office markets with sustained investment, rental growth and take-up in London and regional markets in 2016 and 2017 Supply recovery leading to lower rental growth later in the forecast period Industrial Industrials, especially secondary sheds, will be an outperforming sector even given a sustained development response Retail Although the outlook is the best it's been for many years as consumer disposable incomes rise, retailers risk erosion of profit margins through extensive structural change Hotels, pubs, leisure & healthcare A focus on operational risk and efficiency and new investors will help spur these sectors on Demographics and consumer tastes in these markets are polarising, so the "mid-market" may be a riskier place to be Student Student housing will experience continued strong demand from investors of all types but with supply side challenges in London and key student towns Residential Growth in the wider residential market will moderate Supply constraints likely to continue There are clear opportunities for the private rented sector
The outlook for the UK and regional economies remains strong at the start of 2016, despite some global market turbulence. The past twelve months have been another strong year for office markets in the regions and the South East. The majority have seen take-up well ahead of their long run averages. Large pre-lets returned to the markets, led by occupiers in the banking, finance and professional service sectors. 2015 was an exceptionally strong year for office investment, with almost £5bn spent in the regions. Buyers are increasingly being attracted by ERV growth which emerged with strength during the past year. Looking ahead, there will be potential in locations with a strong economic outlook that have not yet seen strong capital value growth. Investors will also be casting a more detailed eye on the occupational market and will be drawn to those areas with the highest rental growth potential.