Coming Up For Air: UK Commercial Property Values Recover To Pre-Pandemic Levels

UK commercial property values have reached the breakthrough moment.

UK commercial property capital values increased 3.7% in December, according to the latest CBRE Monthly Index. This represents the greatest monthly increase in values for all commercial property in the history of the index and takes the all-property capital value growth for the year to 13.8%. 

Growth was mainly driven by the surge in values in the industrial and logistics sector. In December, industrials reported capital value growth of 8.4%, by far the largest monthly increase for this sector, or any other sector, in the history of the index. 

The final quarter of 2021 was particularly strong, with industrial capital values increasing 13.9%, more than the already fast-growing sector managed in Q2 and Q3 combined.

This takes annual growth to 35.6%, making industrials the strongest performing sector for the sixth consecutive year. Rental values increased 2.3% over the month, 4.1% over the quarter and 9% over 2021. December total returns for industrial were 8.7%, another record monthly increase, and 41.3% for the year. Industrials in the south east outperformed over the year with total returns of 43.8%.

In comparison, the office sector looked anaemic. Office sector capital values increased 0.6% in December, reflecting capital growth of 0.6% in both central London and the rest of the UK. Office sector capital growth in Q4 was 3.9% with annual growth coming to 4.3%, the strongest annual performance since 2017. Office rental values increased 0.2% in December, 0.2% for the quarter and 0.7% for the year. December total returns for the sector were 0.9% bringing returns for 2021 to 9%. 

The retail sector saw some recovery. In December, retail capital values increased 1.8%, the largest monthly increase for the sector since March 2010. Capital growth in Q4 was 3.8% and the sector finished 2021 with annual growth of 6.3%. Retail warehousing was the standout subsector, with capital values increasing 17.2% over the year. Retail rental values declined -0.1% over the month and -1.7% over the year.

Shopping centres dragged the sector down, reporting annual falls in capital and rental values of -12.1% and -4.9%, respectively. In December, retail total returns were 2.4% taking annual returns to 14.2%.

 “The retail and office sectors experienced significant recoveries in capital values following the declines sustained during 2020 as a result of the pandemic," CBRE Senior Analyst Toby Radcliffe said. "Although neither sector has yet reached their pre-pandemic values, this milestone is close for the office sector. Thanks to these recoveries and explosive growth of industrial values, all-property values have surpassed the levels recorded in February 2020, the start of the pandemic, by 5.5%.”