Central London offices and prime London retail will be the winners of 2011, according to the latest economic forecasts by BNP Paribas Real Estate.

City prime offices will see capital values grow by between 3-5% this year compared with 18% growth in 2010, while all City office values are forecast to grow at about 2.5%. 

In the West End, office prime capital values are likely to rise by 10% in 2011 compared to 15% in 2010, but around 7% for all offices in the West End in 2011.  This further growth is expected due largely to expected higher rental returns, but as most growth in values was realised in 2010 - particularly in the City - it will be much more measured this year.

Prime office rents are expected to jump 10% in the City and West End in 2011, following a great 2010 where rental growth was 25% and 20% respectively. 

Overall, the offices sector will see capital value growth of 6% in 2011 and rental growth of 4% which demonstrates how the regional and secondary offices are pulling down the overall average.

On the retail side, it is still the likes of Bond Street and prime shopping centres that will dominate the capital value and rental growth, much as they did in 2010.  As a sector retail is expected to have total returns of 7% in 2011, with supermarkets and retail warehousing outperforming on average across the UK, before rising more substantially in 2012 to 2014.

Dan Bayley, head of Central London offices at BNP Paribas Real Estate, said: “In the regions, demand for offices, comes largely from UK companies, who are able to see value outside of London.  Whereas London is a global City and will always see demand to an extent, the regions are mostly in belt-tightening mode and rely somewhat on public sector occupation which is stagnant. Having said that, we expect, and are starting to see, the demand for outsourcing companies increasing as a response to public sector cuts in the same areas.”

Ian Parish, head of retail at BNP Paribas Real Estate, said: “Confidence in the retail sector is mixed and so are our forecasts for the sector.  Investment activity in the retail sector will continue in 2011 with strong demand for central London stock in flagship locations such as Oxford St and the Kings Road set to continue alongside renewed interest and activity in the provincial cities where flagship stores are let to quality covenants and investors see value.”