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UK Commercial Property

UK Commercial Property Chart Book

UK Commercial Property Chart Book

Retail yield compression surprises in March

The latest monthly MSCI figures indicate that commercial property is holding up well. Rental growth rose further in March, while annual total returns matched July 2010 levels, which were the highest since Q3 1994. Industrial continues to be the driving force, but retail is also delivering a handy contribution. But we expect the current pace of growth will cool down as structural change weighs on occupier demand and yields stabilise. We therefore expect annual total returns to slow to 8-9% by end-2022.

22 April 2022

UK Commercial Property Chart Book

Property returns hit new decade high

Commercial property is not showing any signs of slowing down. Rental growth rose further in February, while annual total returns climbed to a level last seen in Q4 2010. Industrial remains the main driver behind overall performance, with retail also chipping in with a solid contribution. But the year will get tougher for commercial property as the economic revival slows and structural changes within sectors weigh on rental growth and limit yield compression. As such, we expect returns to reduce sharply, with further downside risk stemming from the war in Ukraine. Long Run Outlook Drop-In (23 March, 11:00 EDT/15:00 GMT): What will be the lasting impacts of the war in Ukraine? What legacies will the pandemic leave? What does a future of higher inflation mean for economies and markets? Neil Shearing hosts this special discussion with senior economists about the long-term investing outlook on Wednesday. Register here.

18 March 2022

UK Commercial Property Chart Book

Annual property returns hit a seven-year high

Commercial property ended last year strongly. Annual rental growth climbed to a five-year high, while annual total returns crossed the 20% level. This was largely the result of dynamism in industrial, though all sectors saw positive annual returns, even retail. But we think it will be a struggle to repeat this stellar performance in 2022, as economic headwinds and structural changes weigh on rental growth and the scope for further yield reductions reduces. As a result, we expect returns to be significantly lower in 2022.

21 January 2022
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UK Commercial Property Chart Book

Rental growth hits a three-year high

Commercial property’s recent good run continued in October. The annual rate of rental growth surged ahead after only breaching positive territory for the first time in almost two years during August. However, given the economy’s headwinds over the near term, we suspect that property markets will struggle to maintain their current pace. Once this year’s rebound passes, we expect total returns to soften over the forecast period, as yields stabilise and structural changes within retail and offices weigh on rental growth.

3 December 2021

UK Commercial Property Chart Book

Rental recovery gathers momentum

September was another good month for commercial property, with the first year-on-year rental growth recorded since the onset of COVID-19. But as clouds gather over the economic upturn, we suspect that the real estate recovery will also struggle to maintain its current pace. After a rebound in total returns this year, we expect a moderation over the rest of the forecast, as yields stabilise and rental growth is hamstrung by ongoing structural change in retail and offices.

22 October 2021

UK Commercial Property Chart Book

Industrial leads yield-driven recovery in values

The recovery in UK commercial property continued into August, despite a backdrop of more equivocal economic data. But, while the economic softness should be short-lived and returns for 2021 are likely to remain healthy, we suspect that the real estate recovery will struggle to maintain its current pace. The upturn so far largely reflects a yield-driven boost from the industrial sector, which we think will temper next year, while any revival in office and retail sectors remains hamstrung by structural concerns.

24 September 2021

UK Commercial Property Chart Book

Strong momentum not expected to last

The acceleration in all-property capital growth in June reflected a sharp fall in yields and strong rental growth. But, even as a fast economic rebound boosts occupier demand in the coming months, we think this rate of growth in values will not be sustained. Our expectations are that structural factors will hold back the recovery in the retail and office sectors, which will weigh on the all-property average this year.

UK Commercial Property Chart Book

Reopening supports gradual property revival

The improvements in all-property rents and capital values continued in May, supporting our view that we are at the start of a slow recovery in property. Looking ahead, with non-essential retail and most of leisure now open, and the final restrictions likely to end next month, we expect a strong economic rebound in H2. This should boost occupier demand and support property values, although this will be tempered by structural headwinds in the office and retail sector.

18 June 2021
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