Prime occupier markets across the UK’s commercial real estate landscape began to show improvements during the third quarter (Q3) of 2010 as rental values firmed up in many regions, according to CB Richard Ellis’ latest UK Prime Rent and Yield Monitor. This upturn was countered, however, by weaker investor sentiment in the UK, with regional office and industrial markets beginning to see some outward yield movements.

Prime occupier markets across the UK’s commercial real estate landscape began to show improvements during the third quarter (Q3) of 2010 as rental values firmed up in many regions, according to CB Richard Ellis’ latest UK Prime Rent and Yield Monitor. This upturn was countered, however, by weaker investor sentiment in the UK, with regional office and industrial markets beginning to see some outward yield movements.

Prime rental growth was relatively flat over the quarter, growing by 0.2%. Central London was largely responsible for the minor overall growth, with positive shop and office markets offsetting weaknesses elsewhere in the UK. All Shop prime rents grew by 0.2% this quarter, whilst shopping centers and retail warehouse rents fell by 1.1% and 0.3% respectively. Prime Industrial rents fell by 0.3% in Q3 2010 and are now 2.3% lower than a year ago.

The CB Richard Ellis All Property average prime equivalent yield was unchanged over the quarter, at 6.3%.

The positive yield gap between property and bonds widened in Q3, moving to 340bp from 300bp in Q2 2010. Central London office submarkets saw a mild hardening of yields, with the prime office yield coming in by 8bp to 6.0%. Shops and Industrials saw yields remain flat at 5.8% and 7.4% respectively.

Nick Parker, Senior Analyst for UK Research at CB Richard Ellis, commented: 'Despite the UK market - particularly the regions - anticipating the impact of government austerity measures, the overall market picture has remained quite stable over the past quarter, with occupier markets strengthening slightly at a headline level, whilst yields showed signs of softening in some areas. The stronger than expected economic recovery in the second quarter is no doubt responsible for the general improvement in occupier markets this quarter, however beneath this headline rental growth there was again divergence in regional performance. This regional split is likely to remain as the economy recovers, with Central London enjoying stronger occupier demand whilst prospects remain fragile elsewhere.'

'In the investment market, the summer brought a weakening of investor sentiment in light of the anticipated tougher outlook for the UK from 2011. Downward yield pressure has slowed, calling a halt to capital growth for the time being, although Central London remains more resilient, as income security and growth potential in the capital remain more certain.'