UK/EUROPE - The commercial real estate market in the UK "finally turned the corner" in July, according to CB Richard Ellis, as its monthly index recorded positive total returns for the first time since June 2007.

Values increased by 0.2% and total returns were up by 0.8% in July, although rental values continued to decline across all property sectors.

Retail warehouses saw the largest increase in values during the month, with a rebound of 1.2% and producing total returns close to 2% for July.

David Wylie, head of economics and forecasting at CBRE, said the latest results revealed "the undoubted sea change in investor sentiment that has taken place over the past month".

The all-property total return for July was 8%, but total returns are still down -8.7% in the year to date for 2009.

All-property rental values declined by 0.4% in July, a slowdown on June's -0.9% figure, and rental growth declined by 6.9% in the year to date.

"The strong appetite for prime assets appears to have broadened out sufficiently to allow a stabilisation and improvement in the wider market," said Wylie.

"Although concerns remain over the near-term prospects for secondary assets with weaker covenants, this month's figures seem to confirm that investors have awoken to what is now widely being seen as a once in a generation buying opportunity," he continued.

Meanwhile, Jones Lang LaSalle's latest European Office Yields Tracker report showed that European office market yield decompression continued to stabilise in the second quarter of the year.

Yields held in around half of Europe's office markets, although many markets saw yields stabilise in Q1, only to move out again in Q2, according to JLL.

Nine markets have now experienced two consecutive quarters of stable yields: Berlin, Munich, Stuttgart, Edinburgh, Birmingham, Leeds, Manchester, Rome and Oslo.

In addition, the City of London and Glasgow, which have seen prime yields edge inwards by 25 basis points and 50bps respectively, had seen some of the largest outward movements in prime yields since the peak in Q2 2007.

JLL's blended European prime office yield now stands at 6.10%, 10bps higher than in Q1 2009 and 100bps higher than in Q2 2008.

The Western European component remained stable over the quarter at 5.70% whilst the Central and Eastern European component moved out 70bps to 10.40%.
"Stabilising or even hardening of yields has occurred in parallel with weakening occupational markets," said Tony Horrell, head of European capital markets at JLL.

"Time will tell if further signs of weakness in occupational markets will translate into continued yield movements in the second half of the year."