Commercial Property Values Decline

The UK commercial property market experienced a value decline in 2019, according to a global commercial real estate services company. 

The CBRE Monthly Index revealed that commercial property values fell by 3.2% last year, owing to the retail market’s dire performance. 

On the plus side, total returns for 2019 were however encouraging at 2.2% due to income returns of 5.5%. 

However, the retail sector suffered the worst performance as retail property capital values dropped 12% in 2019 and rental values declined by 4.5%. 

The sector who outperformed the rest was industrial, which delivered a total return of 7.6%, and in second place was offices at 6.9%. 

CBRE analyst Toby Radcliffe said:  

“At the All UK Property level, total returns were 2.2% in 2019. This is the lowest total return reported by the CBRE Monthly Index since 2012 but this is in line with what the market expected at the start of the year when the IPF consensus forecast was 1.8%.  

“The year has been characterised by a decline in retail capital values. While no subsector has escaped these difficulties, shopping centres have been particularly challenging. In contrast, industrials and offices have performed robustly throughout the year with industrials finally emerging on top as the year’s best performing sector, and rest of UK offices as the best subsector.” 

This is a stark contrast to 2018 in terms of commercial property investment, where residential property sales were beginning to decline but commercial property was beginning to boom. 

Commercial property lending increased by 27% in the first half of 2018 according to Cass Business School’s latest UK Commercial Real Estate Lending Report. 

With commercial property values taking a hit, the market also had to deal with weather related disasters which have impacted on commercial property. The recent flooding in the North Yorkshire Dales in July last year posed a major risk to commercial businesses, who were forced to shut up shop and try to block the floodwaters from damaging their precious assets.  

Furthermore, commercial developers, landowners, and tenants in certain parts of UK who reside in the vicinity of potential fracking sites are also concerned about the impact on their investment and employee health. 

There is no doubt that all these factors will continue to challenge the commercial property market and play a part in its performance now and in the future.