December fall in CRE values compounds 2023 decline

Commercial real estate values fell again in December, by 0.9%, meaning that capital values fell by 3.9% for 2023 overall, according to the latest figures from CBRE. This was shallower than the fall of 13.3% reported for 2022. The latest CBRE UK Monthly Index shows that rental values rose by 0.4% in December, while total returns were -0.4% for the month. This means rental values rose by 3.6% for the full year and total returns were 1.7% for the year. Offices Unsurprisingly, offices saw a further fall in the final month of the year. Office capital values declined by 1.5% in December, meaning capital values for the sector decreased by 11.5% for the year. Office values for central London fell by 1.6% in December, which was larger than the declines seen for outer London/M25 offices and rest-of-UK offices (1.4% and 1.3% respectively). Office rental values increased by 0.3% over the month and by 2.1% over the year. Rental values increased month-on-month by 0.3% and 0.4% respectively for the outer London/M25 offices and rest-of-UK offices segments, while central London rental values rose by 0.1%. Total returns for the office sector were -1% for December and -6.7% for 2023. Retail Retail capital values saw a 1% dip in December, resulting in a fall of 4.2% over 2023. Retail warehouses posted the largest decrease in capital values for the month, at 1.2%, followed by shopping centres, where values fell by 1%. Standard shop capital values declined by 0.6%. Rental values for the retail sector increased by 0.2% in December. The retail warehouse sector posted rental value growth of 0.3%, while standard shop rents increased by 0.2%. Shopping centre rents, however, fell by 0.2%. Overall, retail rental values increased by 1.1% in 2023. Total returns for the retail sector were -0.5% for December and 2.7% for 2023. Industrial Capital values for the industrial sector decreased by 0.4% in December, but still increased by 1.4% for the year overall. Industrials in the South East and rest-of-UK saw capital values decline in December by 0.4% and 0.5% respectively. Rental values for the sector rose by 0.6% for December, and by 6.9% for 2023. Total returns were flat (0%) in December but were 6.4% for the sector throughout 2023. Jennet Siebrits, head of UK research at CBRE, said: “Although commercial real estate values fell again in December, there are reasons for optimism as we head into 2024. Capital values in the retail and industrial sectors appear to have bottomed out, and this stabilisation, coupled with expected interest rate cuts later in the year, mean we should start to see the beginning of an economic recovery that will benefit real estate performance and boost investor confidence. “While the prospects for yield-driven capital growth will be limited, income returns will underpin an improvement in total returns and a falling inflation rate will increase the likelihood of positive real returns for investors.” To send feedback, e-mail julia.cahill@eg.co.uk or tweet @EGJuliaC or @EGPropertyNews Image © Oleg Gamulinskiy/Pixabay