Rental Growth Is Improving – But Not Everywhere

As total returns come off their recent peak, while yield compression tails away, performance over the next few years will rely far more heavily on rental growth. But just how much support will this supply?

Annual rental growth reached 4.0% in the final quarter of 2015, not far short of its high water mark this century, the 4.5% recorded in 2007. But in real terms the current rate is much more impressive given the virtually flat level of CPI inflation last year; in contrast, CPI in 2007 averaged around 2.3% and RPI 4.3%.

Prospects for further rental growth this year are still decent, if not quite expected to match last year's. But growth has been far from evenly spread. Our recent UK Property Handbook shows that the office sector has largely driven the improvement over the last couple of years, while the recovery in retail rents has been limited to certain niche segments. The industrial sector, on the other hand, has produced a surprisingly strong recent run