The latest CB Richard Ellis UK Prime Rent and Yield Monitor shows that the All Property average prime yield rose significantly by 50 basis points (bp) in Q4 2007 to 5.7%, the largest quarter-on-quarter shift since 1990.
Yields rose sharply across all sectors of the property market in Q4. The average prime yield is now 90bp higher than a year ago and has returned to the level of Q1 2005. High Street shop yields are at their highest since Q3 2004, while bulky goods retail parks are up 110bp on a year ago.
Commercial property now enjoys its largest positive yield premium over benchmark gilt yields since 2005. Similarly, the average prime yield now exceeds the 5-year swap rate by a margin of almost 60bp.
Prime rental growth eased to 0.7% over Q4. Slowing rental growth in Q4 was largely attributable to reduced momentum in the Central London office market. Retail warehouse prime rents were marginally down in Q4.
Commenting on the monitor, Peter Damesick, Head of UK Research at CB Richard Ellis, said: "The extent of the outward yield shift in Q4 reflects a sharp re-pricing of risk and the lack of liquidity in the market following the credit squeeze. By historic standards this has been a rapid adjustment in property pricing. The question now is how long will it take for values to stabilise and for more buyers to re-enter the market. Although prices may soon start to appear more attractive relative to bonds and borrowing costs, investor sentiment will also be influenced by the state of the economy and the outlook for occupier markets."
Key Points from the Q4 2007 Prime Rent & Yield Monitor:
The CB Richard Ellis All Property average prime equivalent yield moved out from 5.1% in Q3 to 5.7% in Q4 2007