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Returns to weaken regardless of Brexit

Regardless of the Brexit outcome, we expect all-property returns to be squeezed as a result of weakness in the retail sector. However, as Brexit could dramatically alter the near-term outlook for the economy and UK commercial property, we are publishing three sets of all-property forecasts based on different Brexit outcomes. Under a no deal, returns could contract in the near-term, as property yields jump and rental values are hit. But, cuts to interest rates would prevent further rises. If a deal is secured, we expect higher interest rates to put upward pressure on yields and cause sharper falls in capital values from next year. If Brexit is repeatedly delayed, yields could increase a bit more in the near term but we would expect interest rates to rise by less. Nevertheless, under any Brexit scenario, the economy could be growing around 2% y/y by 2021, which would support a recovery in all-property rental values.

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