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LONDON-New research from GVA Grimley highlights the slowdown in the commercial property sector. Rental growth has virtually come to a standstill, and in the year to October 2002 rents grew on average by just 0.3%, down from 3.2% in the year to October 2001. Zero rental growth is expected for 2002 as a whole with only a marginal improvements expected next year.

Retail continues to be the strongest sector and annual rental growth in the sector picked up from 1.6% in March to 2.2% in October. However GVA Grimley expects rental growth to slow to 1.6% next year because of an anticipated slowdown in retail expenditure.

The office sector is weak, influenced heavily by the collapse in office rents in London and the South East. Overall UK office rental growth slumped to -2.4% in the year to October 2002 against +4.8% a year ago Away from the South East, rental growth is far more stable around the 2% per annum mark where it has stayed for nearly 18 months.

However despite slow rental growth, investors are still seeing attractive overall returns from property because of the yield shift that is driving capital growth. In the year to October property produced an overall return of 10.2%. Returns are expected to reduce slightly next year on the back of weak rentalgrowth and stable yields.

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