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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.
Andrew Burrell Chief Property Economist
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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

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

UK Commercial Property Data Response

S&P Global/CIPS Construction PMI (Apr.)

The construction PMI for April showed that building activity remained solid, but that the pace of growth has slowed. An easing in new orders growth also hints at a further slowdown ahead, as the sector faces supply constraints, intensifying cost push pressures and higher costs of borrowing. UK Housing Drop-In (10th May 10:00 BST/17:00 SGT): Economists from our property team are hosting a 20-minute briefing to explain why we think UK house prices are heading for a fall – and how bad the fallout will be. Register now.

6 May 2022

More from Andrew Burrell

UK Commercial Property Update

Online risks to retail may not be as bad as once feared

By any standard, retail property has had a torrid time during the pandemic. The latest data on online sales look like further bad news, with the share of spending much higher than expected after lockdowns. But the recovery in consumer demand has also been stronger and is likely to offset any negative consequences.

21 October 2021

UK Commercial Property Update

Will COVID-19 shift real estate out of town?

With workers spending more time away from city centres, some expected that out-of-town offices could swing back into fashion. It is still early, but from the UK data, the evidence suggests that it is suburban retail, not offices, that is benefiting most from the home-working revolution.

15 October 2021

UK Commercial Property Update

What do the latest UK jobs data tell us?

UK employment has recovered strongly in recent quarters and is set to see further growth into 2022. This will be good news for UK offices, especially in regional cities. But with occupiers set to look beyond headcount when making their space decisions, we don’t think it will bring a turnaround in the sector.

7 October 2021
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