IPF Consensus Forecasts (Feb.) - Capital Economics
UK Commercial Property

IPF Consensus Forecasts (Feb.)

UK Commercial Property Data Response
Written by Prohad Khan
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Though February’s IPF Consensus Forecasts were upgraded for 2021, we remain somewhat more upbeat on UK commercial property performance. Further ahead, our gloomier view for the office sector means that we expect slightly weaker all-property returns over the rest of the forecast horizon.

Consensus more optimistic after this year

  • Though February’s IPF Consensus Forecasts were upgraded for 2021, we remain somewhat more upbeat on UK commercial property performance. Further ahead, our gloomier view for the office sector means that we expect slightly weaker all-property returns over the rest of the forecast horizon.
  • The latest IPF survey showed views for UK commercial property performance have improved a little since last autumn, with expectations for total returns rising from 1.5% to 2.1% for this year. (See Table 1.) That’s perhaps understandable given that values did not fall as far as forecasters feared last year and that effective vaccines provide a path out of current lockdowns. We have also upgraded our 2021 total returns forecasts for all-property from 3.3% in November to 4.7% in February, keeping us well above the Consensus expectations for this year.
  • In general, we are less pessimistic about the near-term outlook for both the office and retail sectors than the Consensus. The IPF survey suggests office and retail capital value growth of minus 3.1% y/y and minus 7.7% y/y respectively in 2021. We expect office values will fall by almost 1% y/y, while retail values decline by another 6% y/y this year.
  • In contrast, for industrial, we are slightly more optimistic about 2021. This is in part due to better outturns in late-2020 and also due to tight COVID-19 restrictions that are set to last until H2, which we think will provide a further boost to demand and help support rental values this year. (See here.)
  • Between 2022 and 2025, the IPF Consensus forecasts has capital value growth of 1.6% p.a. compared with the 1.4% p.a. that we have pencilled in. This mainly reflects the expectation of stronger capital value growth in the office sector. They forecast that office capital values will grow by 2.2% p.a. while we think that the structural shift to more remote working will weigh more on office rents in the long term. (See here.) Over the same period, we are also a bit less pessimistic about retail values and think that industrial capital value growth will be slightly slower.
  • On balance, the upgrades to IPF forecasts for 2021 are understandable given that values held up better late last year and that vaccines now provide a path out of lockdowns. Our more upbeat view of this year can, in part, be explained by our expectation of a strong economic rebound in H2. But after this year, we expect a slower recovery in the office sector will weigh on values and that growth in all-property values will be weaker than the Consensus.

Table 1: All-Property Commercial Property Forecasts (%y/y)

2021

2022

2023

Rental

Values

Capital

Values

Total

Returns

Rental

Values

Capital

Values

Total

Returns

Rental

Values

Capital

Values

Total

Returns

IPF Consensus

May 2020

-1.3

0.2

5.3

0.8

2.9

7.9

1.2

1.6

6.6

August 2020

-1.9

-1.8

3.3

0.7

2.0

7.2

1.5

2.0

7.0

November 2020

-2.8

-3.2

1.5

2.6

-2.3

7.1

1.5

1.9

6.8

February 2021

-2.7

-2.5

2.1

0.4

1.8

6.6

1.4

1.8

6.7

Capital Economics

November 2020

-1.7

-1.8

3.3

0.3

1.0

6.2

0.8

2.1

7.2

February 2021

-1.2

0.1

4.7

0.6

1.5

6.2

0.8

1.8

6.4

Sources: IPF, Capital Economics


Prohad Khan, Property Economist, prohad.khan@capitaleconomics.com