Subdued rental growth sets tone for a weaker year

Occupier demand is strong in all three sectors, with solid economic growth supporting expansion, although we expect this to slow through the course of the year, dampening rental growth in all sectors. Retailers are facing pressures on costs and, with supply in the sector having increased in recent years, rents are under downward pressure. In Q1, retail rents were flat or down, while there was less growth in the other sectors than in recent quarters. There are likely to be further falls in retail rents this year. First quarter investment activity was lower than in the same period last year and few markets saw yields decline. For retail, yields have started to rise as investors re-price the sector’s risks, in line with our predictions for this year.