Greg Nicholson, CBHP's Head of Investment, says: 'The prospects for the economy are uncertain and we appear to be heading for a period of slower growth as a result. The impact of the slowdown in the US on both the UK economy and property market appears to be relatively muted at the moment, but occupiers and investors are maintaining a watching brief.'
Other parts of central London are still seeing growth, however. City rents grew 1.8% in the quarter and 19.7% on the year, while the Midtown market was the strongest in London, with 6.5% growth in the quarter and 28.8% in the past 12 months.
Nicholson agrees that the market was patchy. 'Certain sectors will be more directly affected than others, with corporate requirements in the Thames Valley the greatest area of concern,' he says. 'There are a number of markets--including high street shops and West End offices--where some headline rents have begun to ease back. However, these are generally areas where values have risen rapidly over the last two years and rents have eased back to more sustainable levels.'
Investors are also nervous, with yields softening almost across the board. The average all-property yield increased from 7.1% to 7.2% in the past quarter, with retail among the hardest-hit sectors. The average yield on town centre shops moved up from 6.8% to 7.0% in three months.
Reflecting concerns about the key Thames Valley market, yields on south-eastern office moved from 7.2% to 7.6% on the quarter. A year ago they stood at 6.9%.
But Greg Nicholson says that values could soon begin to recover: 'We remain optimistic that the UK property market is well placed to weather a moderate downturn in occupational demand. Availability and vacancy rates are relatively low in the key markets and development activity remains subdued,' he says.
'Provided the downturn in the US economy does not become a prolonged slump, we are confident that rental growth will begin to recover towards the turn of the year. Following a prolonged period of upward pressure, property investment yields should stabilise, as investors assess the medium term prospects for rental value growth,' he notes
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