UK Commercial Property Posts Record Monthly Increase In November

A respected barometer of UK property prices, the CB Richard Ellis Monthly Index (CBRE), came in at a figure that must have startled most observers, many of whom were warning that commercial property was going to be 'the next shoe to drop'.

Completely confounding the pessimists, the investment returns on British commercial property surged in November by the biggest amount since records began nine years ago.

The monthly rise in mean value of 2.7 percent was the fifth straight increase in a row according to the CBRE.

Values have been from a depressed level since July, when they hit a low of negative 44 percent compared with the bubble heights reached in mid-2007. However since then the rebound has been sustained and steady, with this months figures suggesting accelerating growth.

"The strength and depth of current investor demand seems destined to lead to a continuation of the very strong returns seen in recent months into next year," said David Wylie, head of Economics and Forecasting at CBRE.

Nevertheless there are still plenty of investors worried that Britain's commercial property market, second in Europe only to that of Germany, may not be able to sustain its present rate of growth. Concern is rising that a short-lived sector recovery is in store if values rise too far ahead of the general economy and rents .

"However, the prospect of more significant increases in supply coming through, and the generally weak rental growth outlook, may act as a brake on the strength of the recent recovery," David added.

Retail warehouses, up 4 percent, and shopping centres, up 3.9 percent, led the November surge. On the negative side, the ongoing decline in average rental values continued, with rents falling by 0.3 percent in November. However the rate of decline was lower than in October, suggesting rents may be stabilising.

Though rental income was down 9.3 percent from a year ago, a CBRE consultant pointed out that total return on sector investment, taking into account rental income and capital growth, managed to rise to a record 3.4 percent for the month of November.

Last week the major UK mortgage lender Nationwide reported that British domestic property also rose last month - by 0.5 percent.

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