Retail property rental values will have fallen by 2.3% during 2010 and will drop by a further 1.5% in 2011 as public sector cuts and waning consumer confidence take hold, according to the Colliers International Q4 2010 survey.

Colliers expects to see a renewed increase in the number of retailer administrations taking place on or around the March quarter day, after their trading has been hit by the VAT rise and another cold winter.

Conversely, Central London offices are forecast to produce total returns of close to 22% in 2010, followed by over 10% in 2011. These figures are on the back of anticipated strong rental growth for Grade A office stock in the City and West End as a shortage of high quality space takes hold. In fact, throughout the forecast period, Colliers say that Central London offices will provide the best returns as a cyclical uptick in rents will be aided by the completion of a number of new developments in 2013 and 2014.

At the All-Property level, forecasts are for total returns of 8.3% between 2011 and 2015, with three-quarters of this being accounted for by the income return received on commercial property. With Gilt yields at historic lows and economic risk weighing on equity valuations, commercial property continues to offer an attractive proposition of stable income plus potential for capital value uplift.

Russell Francis, Head of Valuations at Colliers International, said: “2010 has seen a strong recovery in the prime property market, with a total return of close to 15% powered on by a positive yield shift and strong rental performance in Central London.

“While next year returns fall back as the economy falters and rents and yields flat line we don’t see a sell off of prime, but secondary properties will continue to fall in value. The medium term outlook for property is however very bright and the golden opportunity to buy secondary product at the bottom of the cycle is not that far off. The availability of bank debt for secondary property will remain an issue but we see a strong performance from 2012 onwards.”