■ The latest IPD monthly index (May 2014) shows that average rental growth on a three month annualised basis is now positive for office, retail and industrial. The big change in recent months has been the flattening out of retail rents. with retail warehousing in particular now showing three month annualised growth of 1.05%.

■ On the same measure All Office rental growth is running at 5.27%pa (with City and West End offices delivering growth of over 10%), and All Industrial rents rising at 1.97%pa.

■ We expect this trend to continue for the remainder of 2014, making this the first year since the downturn that all three main sectors have shown positive rental growth.

■ Generally the drivers of rental growth over the next five years are expected to be broadly similar across all three sectors. In particular, the development pipeline outside London is forecast to be very restrained, and this will lead to a steady fall in Grade A vacancies across all sectors.

■ The demand-side is also expected to show a solid recovery. Both the Manufacturing and Services PMIs are showing robust month-on-month rises in activity, and this will feed through into business expansion in the remainder of the year and beyond.

■ Rental growth prospects are generally improving, and our midyear update now has average annual rental growth over the next five years for industrials of 1 - 2%pa, for offices of 1.5 - 5%pa, and retail at 0.5% - 3%pa. We will be going into these in more detail in our mid-year cross sector update later this month.

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Is an early interest rate rise likely?

■ Mark Carney's recent comment that an interest rate rise could happen "sooner than markets currently expect" has led to a flurry of speculation and comment that the MPC has swung towards a more hawkish view on the future. However, the rationale for this view is hard to find.

■ While much of the comment about this perceived change of stance has focused on house price growth, we mustn't lose sight of the fact that the sole focus of the MPC is to maintain inflation at its target level. Given that the May CPI release showed that core inflation is running at 1.5%pa, there appears to be very little rationale for an imminent rise in the base rate. Indeed, service sector inflation fell to 2.3% in May, a record low.

■ Wage growth also remains anti-inflationary, with April's data showing that average weekly earnings fell by 1.7% year on year.

■ We suspect that Mr Carney's speech was designed to get people used to the idea that rates will go up, not to herald an earlier than forecast rise.

■ In the commercial property markets it is clear that lenders are lowering margins to compensate for the rise in the five-year swap. Thus we do not see a rate rise, when it happens, as a particular risk to the property market recovery. We remain of the view that a gentle rise in rates from spring 2015 is the most likely path, and this will have little impact on property yields.

Taken from
Market in Minutes: UK Commercial - July 2014