UK Prime Rents and Yields MarketView

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1 Q 2 Q1 2 Q1 2 Q 2 Q2 2 Q1 2 Q 2 Q 2 Q2 2 Q 2 Q2 211 Q 212 UK Prime Rents and Yields MarketView CBRE Global Research and Consulting RENTS - RISERS 2 YIELDS - FALLERS RENTS - FALLERS YIELDS - RISERS ACCELERATING FALL IN YIELDS RECOVERY IN REAL ESTATE MARKET SPREADING ACROSS THE COUNTRY At the national level commercial property rents grew by.% over the last quarter continuing the stronger rental growth seen in the last two quarters. The average prime yield fell, decreasing by 12 bps over the quarter. It was particularly notable that the number of locations where yields are falling making a positive contribution to capital value growth has increased sharply over the last few quarters and has also spread more widely across the country. In contrast, in the vast majority of locations monitored rental values are stable, with increases largely confined to London and the. were the best performing sector in terms of rental growth in, as has been the case for each of the last five quarters. There are now very few office locations where rents are falling (just four in ) and the increasing number of locations recording where rising rents contributed to an average of 1.% growth in prime rents over the quarter The rate at which prime yields are falling across the country continues to accelerate. Overall, the average prime yield dropped by 12 bps in Q to.%. The biggest fall was recorded in the industrial sector, where the average prime yield fell from.1% at the end of Q2 21 to.1% at the end of Q. Table 1: Nominal Prime Rental Growth (%) Q /Q Y/Y All Property Shopping Centres -.1. Retail Warehouses s.1. Table 2: Prime Yields (%) Q2 21 Q/Q bps Y/Y bps All Property Shopping Centres Retail Warehouses s Chart 1: Prime Property Yield Gap (%) Chart 2: Annual Rental Growth and Yields (%) Property Yield Gap Year Gilt All Property Rents (LHS) All Property Yield (RHS) , Macrobond 21, CBRE Ltd

2 Q1 2 Q1 2 Q1 2 UK PRIME RENTS AND YIELDS MarketView PRIME RENTS Central London offices were once again the main driver of the strong performance in the office sector. Over the quarter, they recorded the highest rate of rental growth at 2.%, with growth of.1% over the last twelve months. Within the segment, offices in the West End and Midtown were the ones with the highest rental growth in the third quarter,.% and.% respectively. Rents in the rest of the UK remained broadly flat. Thames Valley continued to grow, increasing by 1.% over the quarter. In contrast, the and recorded a slight decline in rents. Over the last 12 months the results have shown positive trend, with improving rental growth in each segment except for West Midlands (-.%), (-.%) and (-.%) continuing the pattern that started last quarter. Chart : Annual Prime Rental Growth by Sector(%pa) Retail Warehouses Shopping Centres Retail This quarter All Retail performance was driven by high street shops in Central London that recorded rental value growth of 2.% for the quarter. Rents for the Rest of UK excluding London, and Eastern again recorded a fall, decreasing by -.% over the quarter. In contrast to high street shops, shopping centres and retail warehouses recorded a downward trend in rental values, mainly due to falling rents in London, and Eastern and flat rents in the other regions. Another notable feature of the results is the polarization of the retail sector. The sector includes the individual locations with both the largest increases in rental value and the biggest falls. Chart : Central London Prime Office Submarket Rental Growth(%pa) West End Mid Town City Docklands 2 Rents in the industrial sector remained largely unchanged over the quarter, with flat rents in London and very small rate of growth for the Rest of UK regions. The highest rental value growth was for industrials in and in at 1.1% over the quarter. The only region with falling rents was the with rental value growth of - 2.% in. Rental values were unchanged in % of the industrial locations monitored. Rents High Street s Risers 1 Stable Fallers 2 2 Chart : Regional Prime High Street Rental Growth (%) Central London West Midlands 21, CBRE Ltd

3 Q 2 Q1 2 Q 2 Q1 2 Q1 2 Q 2 Q1 2 Q 2 Q1 2 Q1 2 Q 2 Q1 2 Q 2 Q1 2 Q1 2 PRIME YIELDS Chart : UK All Sector Average Prime Yields (%) Shopping Centres Retail Warehouses Chart : Prime Office Market Yields (%) West End City West Midlands Yorks & Humber While in Central London was the only region to experience a fall in yields this has now spread to almost all regions in the office sector. Across the office locations monitored, % recorded falling yields and only 1 location had a rising yield. Prime yields in Central London offices continued to drop, declining by 1 bps in the third quarter. They currently stand at an average of.% and at the lowest level since Q1 2. in West End and City saw quite significant decreases and made the biggest contribution to Central London performance. Regional offices continued the downward trend that has started in the previous quarter. The highest fall in yields was recorded for and, and bps respectively over the quarter. The key provincial cities also recorded quite marked falls in yields ( bps in Q). The only uplift in yields was for Wales, 2 bps over the quarter. Retail In the retail sector, the fall in yields continued to spread across the UK, reaching almost every region in Q. The average prime high street retail yield in Central London has now fallen to a remarkable.%, declining by 1 bps over the quarter. In the rest of UK, and East Midlands shops showed the biggest downward yields movements of 2 and 2 bps respectively. Average prime Shopping centres and retail warehouses yields remained unchanged this quarter. UK PRIME RENTS AND YIELDS MarketView The average prime yields are falling for retails, however there are far more retail locations recording rising yields than in the case in the other sectors. Chart : Market Yields (%) Overall in the UK, the industrial sector recorded the biggest fall in average prime. Nearly all of the UK regions recorded a drop in yield, but the largest were for the ( bps) and London ( bps) over the quarter. The only segment with no decrease in yields was North East, where yields remained flat. The declining yields were recorded in 1 of the 1 industrial locations monitored. London Yields High Street s Risers 1 1 Stable 2 12 Fallers , CBRE Ltd

4 UK PRIME RENTS AND YIELDS MarketView CBRE UK PRIME RENT AND YIELD MONITOR Rental Growth (%) Actual Yields (%) Yield Shift (%) Q/Q Y/Y Last Years (% pa) Q2 21 Q/Q Y/Y All Property All Central London Suburban London RENTAL VALUES YIELDS** Eastern East Midlands West Midlands Wales Yorkshire & Humberside North East Rest of UK (excl. London, SE and Eastern) All Shopping Centres In Town Out of Town London, SE and Eastern Rest of UK (excl. London, SE and Eastern) All Retail Warehouses Bulky Fashion Open A London, SE and Eastern Rest of UK (excl. London SE and Eastern) All West End City Mid Town Docklands Southbank M2 North M2 South Thames Valley Key Provincial Cities Out of Town Central London Suburban London Eastern East Midlands West Midlands Wales Yorkshire & Humberside North East All London Eastern East Midlands West Midlands Wales Yorkshire & Humberside North East , CBRE Ltd

5 CONTACTS For more information about this Local MarketView, please contact: Michael Haddock Senior Director CBRE Henrietta House Henrietta Place London W1G NB t: e: [email protected] Aleksandra Starczynska Analyst CBRE Henrietta House Henrietta Place London W1G NB t: e: [email protected] UK PRIME RENTS AND YIELDS MarketView + FOLLOW US GOOGLE+ FACEBOOK TWITTER Global Research and Consulting This report was prepared by the CBRE EMEA Research Team which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. Disclaimer CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.