Capital values grow for commercial property - Palmers Solicitors

Capital values grow for commercial property

Capital values grow for commercial property

There has been some relief for landlords as capital values across the UK commercial property sector have surged, according to a new survey.

This is despite the uncertainty over workers returning to offices and the growth of working from home, which has become a feature for nearly all businesses during the lockdown.

But data from leading global real estate firm CBRE has revealed that capital values saw the greatest monthly increase in seven years, with the retail sector bouncing back strongly as the country opened up again.

It comes as figures from the Office for National Statistics (ONS) show UK gross domestic product (GDP) for the second quarter is estimated to have increased by 4.8 per cent, which is now 4.4 per cent below the pre-pandemic level at the end of 2019 .

In the office sector, London was outperformed by the rest of the country, but there was a slight dip in the industrial sector.

CBRE’s Monthly Index for July saw capital values rise by 1.0 per cent, the largest monthly growth rate since December 2014.

As lockdown measures eased, in July, rental values rose 0.2 per cent, while total returns were 1.4 per cent. As restrictions lifted, the retail sector saw a large spike in activity, resulting in capital values rising to 1.1 per cent.

CBRE states that the rise was driven by growth in all retail sub sectors apart from shopping centres, which posted a capital growth of -0.3 per cent.

The strong month for retail capital values was boosted by a 2.1 per cent capital growth for retail warehouses, a record monthly increase for the sector. This strong performance was reflected around the country and not just in one region.

Office sector capital values increased 0.2 per cent in July, reflecting positive growth outside Central London, while Central London values were unchanged. Office rental values increased 0.2 per cent and office total returns were 0.5 per cent for the month.

Offices in the rest of the UK stood out, increasing 0.3 per cent, compared to -0.2 per cent in June.

The industrial sector showed a positive capital value growth at two per cent. However, this figure is slightly down from the 2.3 per cent seen in June.

Following the trend set by offices, industrials in the rest of the UK saw stronger capital value growth than those in the South East, with increases of 2.4 per cent and 1.7 per cent, respectively, illustrating the strength of interest in the sector across the country.

BJ Chong, a Director with Palmers Solicitors, said: “Commercial landlords have experienced financial uncertainty for more than a year as a result of the Covid pandemic.  There are winners and losers as these reports demonstrate the changing economic drivers during this phase of the pandemic.

“Activity in some sectors of the commercial property sector is starting to bounce back.  The economy as a whole is responding positively to the easing and removal of some of the public health restrictions.

“However, whilst the green shoots of recovery are a step in the right direction, there are many commercial landlords and tenants who continue to struggle with debt and rental arrears. Businesses in this situation need to seek professional advice to mitigate the effects of debt.”

For help and advice on all matters relating to commercial property and business or insolvency guidance, get in touch with our expert team.