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LONDON-Rental growth across the UK has reached its lowest level since 1994, according to CB Hillier Parker’s latest Rent & Yield Monitor report. Commercial property rents grew by an average 0.4% in the third quarter of 2001, and the West End and Western Corridor office markets actually registered falling rental values.

The figures do not reflect the full impact of 11 September, and the broker forecasts that worse is to come for the property markets. ‘Tenant demand for commercial property space in the UK will be subdued for at least the remainder of this year, with occupiers delaying decisions on outstanding requirements,’ the report notes. ‘The downward trend in rental value growth in the first half of this year will be exacerbated and those sectors and regions with a high preponderance of hi-tech and financial services operators look set for a period of retrenchment.’

Rental growth is already flat across all sectors. In the office sector, average rents grew by just 0.1% in the third quarter ,the lowest rate recorded for over seven years. However, strong growth in the final quarter of 2000 means that the annual growth figure is still strong at 10.3%. Industrial rental growth stalled over the quarter, and CB Hillier Parker points out that, with prime rents reaching £11.50 ($16.80) per sf around Heathrow, a period of retrenchment was perhaps inevitable. And retail rents stabilised after a fall in the second quarter of 2001 although rents are continuing to fall in some mall and medium-sized centres.

Average yields in most sectors remained stable during the third quarter, although yields on retail warehouses and industrials moved out another 10 basis points. Across property as a whole, the average yield softened for the sixth consecutive quarter to stand at 7.3%. Even though the Bank of England has cut interest rates aggressively this year, the average yield stood at 6.7% this time last year.

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