The quarterly rate of rental growth across the UK commercial property sector has dipped below 1% for the first time since 1995, and the high street fell by 0.3% over the quarter--the first fall since 1993. Investors have reacted to this decline in performance by pushing up yields for the fifth consecutive quarter.

A slowdown has also been noted in the office sector, with rental growth moderating to 1.4% over the quarter. The report says this may simply represent a return to more sustainable levels of growth following two years of extremely strong growth. But the key West End market in London saw rental values fall by 0.5% over the past three months--the first downturn since 1993. Demand has fallen by 6%. The report notes: 'Tenants are still willing to pay keen rents for good quality space, but are more cautious about paying a premium for a prestigious address. It is unlikely that we will see any more of the stellar deals that pushed headline rents above £90 ($127) per sf in the immediate term.'

In investment terms, all sectors except retail warehouses saw an increase in yields across the quarter. High street shops remain the least popular sector and yields rose by 20 basis points to top 7% for the first time since 1993. Office yields increased to 7.4% with upwards pressure strongest in the South-East, reflecting concerns about demand from high-tech occupiers in the Thames Valley.