CoStar analysis: Retail pricing lags in both UK and US as industrial outperforms

By Marianne Fitzpatrick - Wednesday, September 06, 2017 14:14

CoStar data analysis can reveal that industrial continues to be the strongest recent performer of the three main property types on both sides of the Atlantic, according to the first in a new series of articles comparing UK and US real estate performance nationally. Retail, meanwhile, is lagging on both sides of the pond.

Using CoStar’s investment transactions data in both the US and the UK, we are able to discern movements in pricing by using repeat-sale indices, which looks at instances where the same property has sold twice over a period of time.

In recent years, continued (albeit moderate) economic growth and stable long-term interest rates have helped extend the favourable run in CRE pricing across both sides of the pond.

In the UK and the US there is a sense that prime office pricing has now peaked, having exceeded pre-crisis levels. Offices remain the UK’s most expensive sector, although the value-weighted index is heavily influenced by London sales. Momentum ticked up slightly in Q2, following losses in prior quarters amid political and economic uncertainty post-Brexit referendum. In the US, pricing peaked around a year earlier than in the UK, but has similarly fluctuated in recent quarters.

Historically low vacancies and above-average rental growth in both UK and US industrial sectors has pushed industrial pricing up sharply over the last few years. In the UK, prime industrial pricing is now at a 10-year high and close to exceeding pre-crisis levels. In the US, robust investor demand means industrial price growth is now outpacing that of prime offices.

In both countries retail is the weakest performing sector. In the UK, retail has been the most volatile index in the prime series. Pricing has struggled to return to pre-crisis levels. Many retailers have reported challenging trading conditions and cost-cutting measures, including job losses and store closures. In the US the picture is similar, with reported store closures by retailers including Macy’s and JCPenney. And while US prime retail pricing has exceeded pre-crisis levels (unlike in the UK), recent headwinds means pricing has plateaued in the last few quarters.

The next article in the series will focus on the winners and losers of the last recession and recovery – which UK markets and sectors recorded the biggest price increases from 2011 to 2016 and which have struggled to recover?

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