UK Commercial Property
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UK Commercial Property

UK Commercial Property Outlook

UK Commercial Property Outlook

Recovery to continue, but at a slower pace

The economic recovery has stalled and the near-term outlook is softer. Meanwhile, higher inflation is expected to bring interest rate hikes as early as December 2021, though we think that the pace of tightening will be fairly gradual. The post-COVID-19 property recovery has strengthened further across all sectors. But the rental outlook remains fragile, while we expect less assistance from falling yields after this year. As a result, we are close to the peak of capital value growth and performance will be much more subdued over 2022-25. Within this, industrial remains the standout, while London offices have the weakest returns.

19 November 2021

UK Commercial Property Outlook

Slow and uneven revival to continue

The economic recovery has lost some momentum over the summer, but we expect that this will be a temporary setback and the backdrop will be strong into the medium term. There is growing evidence of a sustained commercial property upturn, albeit a weak and unbalanced one that is heavily reliant on the industrial sector. With the rental outlook still fragile elsewhere, we expect limited downward pressure on yields and only modest growth in capital values near term. Further out, office and retail face persistent structural challenges, which leaves industrial as the top performer, though even here capital value growth is not likely to sustain its current pace.

25 August 2021

UK Commercial Property Outlook

Property slowly turning a corner

The easing of restrictions is good news for the economy, but some commercial property sectors will be slower to benefit than others. Encouragingly, the property downturn was not as bad as we anticipated and the data for Q1 suggest that we may be close to a turning point. However, with rental growth prospects still poor outside of the industrial sector, we expect limited downward pressure on yields and modest growth in capital values in the near term. Further out, office and retail face structural headwinds, which leaves industrial as the stand-out performer over the forecast horizon.

21 May 2021
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UK Commercial Property Outlook

COVID-19 scarring slow to heal

Effective vaccines provide a path out of the COVID-19 economic slump, but commercial property will be slow to benefit. On the bright side, the real estate downturn has been milder than expected and we appear to be past the worst. But we think yields will stay elevated, and that all-property rents will decline further and capital values will stabilise in 2021. And even as the economy returns to normal, it will bring only an insipid property recovery, with office and retail sectors dogged by structural change. This means that industrial performance continues to stand out, topping the rankings for returns over a five-year horizon.

19 February 2021

UK Commercial Property Outlook

Lockdown pushes recovery into 2022

The outlook for most commercial property sectors was already fragile and this has only been dampened by the second lockdown. Although transactions are set to pick up next year, we think property yields will edge higher and that all-property rents and capital values will decline further. Even as the recovery arrives during 2022, it will be unspectacular, with office and retail performance undermined by ongoing structural change. Only industrial property emerges from the pandemic in better shape, topping the rankings for returns over a five-year horizon.

UK Commercial Property Outlook

Structural change hits rental growth

The near-term outlook for most commercial property sectors is poor despite the early signs of economic recovery. Although transactions are set to pick-up post-lockdown, we think property yields will rise further as the rental outlook deteriorates. Between 2019-24, we expect all-property rental value growth will be at best flat. This reflects not only cyclical weakness, but also lasting structural change, such as more remote working and more online spending. Overall, all-property returns will average 4.3% a year, which is weak by historical standards and a downgrade on our previous view.

19 August 2020

UK Commercial Property Outlook

COVID crash to decimate capital values this year

The coronavirus outbreak has transformed the economic outlook and is expected to hit commercial property hard. In the near term, we expect transactions, which are already slowing, to collapse and property yields to spike, as uncertainty over future rental growth peaks. Assuming the path out of lockdown continues as set out by the government, there should be early signs of recovery by the summer, though the risks will remain skewed to the downside. Over the next five years, we think all-property rental value growth will resume slowly, as economic growth recovers. As a result, capital value growth will also see consistent improvement. Overall, all-property returns will average 5.2% a year, which is relatively weak compared with recent historic averages. We are resending this publication due to an incorrect title in the previous message. We apologise for any inconvenience.

22 May 2020

UK Commercial Property Outlook

Returns to recover as retail emerges from slump

A subdued economic outlook and continued contraction in retail are expected to weigh on all-property rents and returns this year. In the near-term, rising property yields will be the result of the ongoing correction in the retail sector this year, while a 25bps rise in UK interest rates in 2021 brings a modest increase in other sectors. Over the next five years, we think all-property rental value growth will improve slowly, but steadily, as economic growth recovers and vacancy remains low. As a result, all-property capital value growth will also see consistent improvement. Overall, returns will average 5.7% a year, which remains relatively soft compared with the 8.1% a year average over the last five years.

20 February 2020
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