BNP Paribas RE sees UK retail outperforming in 2010

UK retail property will be the ‘winner’ in 2010 with a 4.5% rise in capital values across both prime and secondary assets in the sector, according to the latest economic forecasts of BNP Paribas Real Estate. By comparison, the adviser is forecasting capital values in the office sector will grow by an average 1.8% this year, while the industrial sector is likely to see a small increase of about 1.5%.

Within the industrial sector, prime logistics property is likely to have a very good year, the adviser added, with grade A stock in locations such as Heathrow and other South East hubs in high demand.

On average, BNP Paribas Real Estate sees capital values across all property in the UK increasing by 3.5% before rising further in 2011 by 0.7%. Between 2012 and 2014 another 7% growth is currently expected on average across all property types.

The forecasts are in line with the adviser’s prediction in late 2009 of a slow but definite recovery for the property market. Between 2010 and 2014, the office sector will outperform the other sectors overall with an accumulated growth of 12.4% compared to retail at 11.8%, industrial at 10% and the average across all sectors of 11.5% by 2014.

Central London office capital values in the City and the West End will rise beyond the average rate at 7.5% and 5.8% respectively; although prime buildings will be significantly higher than this on the back of prime rental growth, provided gilt yields remain stable.

Paul Griffiths, head of investment at BNP Paribas Real Estate UK, comments: 'Our forecasts indicate that the UK investment market is not a ‘bubble’ but instead a sustained recovery. There is enough money floating around to ensure that all prime property types are likely to gain value this year and again in 2011. We may even see yet higher gains in capital values in 2010 than we’ve already indicated - if there continues to be a shortage of prime assets available to satisfy the huge weight of demand from both UK institutional and overseas investors.'

The forecasts also look at rental growth, which will see a fall of -3.3% across all property in 2010 before returning to modest growth in 2011 of 0.8%. By 2014, accumulated rental growth will be about 13% across all property and sectors. The retail sector will be least affected in 2010, with a small fall of rental growth at -0.8%. The office sector will fare worst at -7% across all types and locations, with overall industrial rents falling by -4%.