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Market Analysis
Corporate Office
Retail

2020 sees ‘a -7.6% fall in capital values and total returns of -2.2%’

Open-access content Thursday 14th January 2021 — updated 10.30am, Friday 15th January 2021
Authors
Herpreet Kaur Grewal
Office demand is 'stable' as the UK hits a recession

Shutterstock

The UK’s commercial property capital values rose 0.3 per cent in December, according to the CBRE’s Monthly Index.
 
This represents the first time that values have risen at the all-property level since October 2018. 

Capital value growth for the year was down by 7.6 per cent. 

In December, rental values were flat at 0.0 per cent, the first time in 10 months that a decrease has not been posted, taking annual growth down by 2.5 per cent. 

Total returns were 0.8 per cent over the month, making returns lower by 2.2 per cent for 2020.

In December, the industrials sector reported capital value growth of 2.7 per cent, the largest monthly increase for the sector in the history of the index. 

Over Q4 2020 capital values increased by 6.1 per cent, a greater increase than the sector posted in all of 2019. 

This takes annual growth to 4.8 per cent, making industrials the strongest-performing sector for five consecutive years. 

Rental values increased by 0.9 per cent over the month and 2.8 per cent over 2020. 

December total returns were 3.1 per cent, another record-breaking monthly increase, and 9.9 per cent for the year. Industrials South East outperformed over the year with total returns of 11.4 per cent.

Office sector capital values increased 0.1 per cent in December, the first increase in values since February 2020. 

This was driven by central London offices, where values rose 0.7 per cent over the month. The fourth quarter posted capital growth of -0.6 per cent for the office sector with annual growth coming to -4.2 per cent, the weakest annual performance since 2009. 

Office rental values were flat at 0.0 per cent in December and -0.5 per cent for the year. December total returns for the sector were 0.5 per cent, bringing returns for 2020 to 0.5 per cent.

In December retail capital values weakened by a further -1.0 per cent. 

Capital growth in Q4 was -2.8 per cent and the sector finished 2020 with growth of -17.8 per cent. 

Rental values declined 0.7 per cent over the month and -8.3 per cent over the year. 

In 2020, retail was weakened by shopping centres, which reported falls in capital and rental values of -30.0 per cent and -13.6 per cent respectively, the subsector's weakest-ever annual performance. In December retail total returns were -0.4 per cent, taking annual returns to -11.6 per cent.

Toby Radcliffe, research analyst at CBRE, said: “2020 was a year of remarkably different sectoral performance, reporting the greatest divergence between the strongest and weakest performing sectors in the index’s history (at 21.5 percentage points). Throughout the year the retail and (to a lesser extent) office sectors were challenged by the external pressures imposed by the Covid crisis. Meanwhile, the industrial sector thrived.

"The sector responded to 2020’s challenging environment posting a strong annual performance including December’s record-breaking capital growth and total return. Consequently, 2020 ended on a positive note with all property capital value growth tentatively moving back into positive territory for the first time in over two years. However, with the UK starting 2021 in a third national lockdown the extent to which the industrial sector can continue to bolster the all property performance remains to be seen."

Image credit | Shutterstock
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