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UK Commercial Property

UK Commercial Property Outlook

Interest rate rises hasten property slowdown

The worsening monetary outlook is expected to weigh on property performance. With inflation set to peak at 10% y/y that will force interest rate to 3.0% next year. This will reverse the recent momentum in the commercial property sector, as yields flatten this year and rise from 2023. At the same time, outside of industrial, the rental outlook will remain weak and that means capital value growth will slow sharply this year and move negative in 2023-24. As a result, returns will dip below 5% p.a. in those years, albeit recovering again at the end of the forecast. Within this, we expect retail warehouses, shopping centres and leisure to outperform.

20 May 2022

European Commercial Property Update

Homeworking to remain key to city retail performance

One of the unforeseen consequences of the homeworking revolution is its negative impact on city centre retail footfall. The evidence suggests that in urban centres there is a link between higher levels of remote work and poorer retail performance, which we think is likely to persist. In view of the wider interest, we are also sending this European Commercial Property Update to clients of our UK Commercial Property Service. Property Drop-In (19th May): What will rising interest rates mean for commercial property returns in the US, UK and Europe? Join our 20-minute briefing on the outlook for returns on Thursday. Register now.

13 May 2022

UK Commercial Property Valuation Monitor

Valuations worsen to post-GFC low

Commercial property valuations worsened further in Q1 and now look overvalued. The spread between property and gilt yields narrowed to its lowest level post-GFC, but still has some distance to fall to reach the lows of 2007. With more interest rate hikes on the cards and gilt yields set to rise further, we expect property valuations to worsen over the next 12 months. See how UK commercial property valuations compare with the US and Europe on our new CE Interactive dashboard.

10 May 2022

Our view

The recovery in the UK commercial property market is set to slow this year. With bond yields higher than expected and set to rise even further, we now expect all-property yields to move sideways in 2022 and rise from 2023, which will reduce capital value growth and returns. Structural change will continue to weigh on retail and office performance, while an increase in supply is expected to cool industrial rental growth. Industrial and retail warehouses are expected to lead the way on total returns over the next five years.