London keeps rents in growth mode… just

Prime rents grew by just 0.2% in the first three months of 2012, driven mainly by a strong London market.

CBRE’s quarterly Prime Rent and Yield Monitor shows that prime office and industrial rents both increased by 0.4% during the quarter, with London offsetting weaknesses in other parts of the country.

After a marginal decline in Q4 2011, prime shop rents levelled off in the first quarter. This was again due to a strong performance in London, where retail rents rose by 2.4%.

Elsewhere in retail, shopping centres and retail warehouses saw prime rental levels slip by 0.1% in Q1.

The CBRE All Property average prime equivalent yield was flat at 6.1%, with only retail warehouses recording any movement at a sector level, out by 10 basis points to 6%.

Nick Parker, senior analyst at CBRE, said: “The message coming from these results is clear, London remains the key hub for UK commercial real estate growth. In all three major sectors, London experienced positive growth in Q1, with central London shops the jewel in the crown of UK property. They have seen strong rental growth amidst wider economic uncertainty, highlighting occupier affinity with key shopping locations across the West End. London is performing an important counterbalancing role and supporting prime rents, but this is shrouding the story in some regional areas where perhaps markets are not performing at the same level.”

He added: “The same could be said of investor markets, with prime property in central London being heavily focused on amid continued uncertainty for the UK economy. However, a lot of the steam has come out of the value recovery, and prime yields have levelled-out over the past 18 months. What remains to be seen is whether this is an inflection point, with some further downward yield shift to come, or a bottoming out of yields, with fragile sentiment giving way to a mild correction for UK property.”