The upswing in commercial property capital values is approaching its end. But unlike past cycles, capital values are more likely to plateau than to fall materially over the forecast horizon, at least in aggregate. Steady job creation will support occupier demand and keep rental values rising gently, while even our above-consensus forecasts for rate rises point only to a slow upward drift in property yields, not a sudden spike.
Total returns will therefore average 5% over the next few years, half last year’s outturn. Within that aggregate, the most expensive parts of the market, namely offices in London and the South East will underperform, while industrial property will lead the way.
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