UK Commercial Property

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.
Andrew Burrell Chief Property Economist
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UK Commercial Property Chart Book

Rental growth hits a three-year high

Commercial property’s recent good run continued in October. The annual rate of rental growth surged ahead after only breaching positive territory for the first time in almost two years during August. However, given the economy’s headwinds over the near term, we suspect that property markets will struggle to maintain their current pace. Once this year’s rebound passes, we expect total returns to soften over the forecast period, as yields stabilise and structural changes within retail and offices weigh on rental growth.

3 December 2021

UK Commercial Property Data Response

Lending to commercial property (Oct.)

A drop in repayments and rise in development activity resulted in positive net lending in October for the first time since March. Despite this turnaround, credit conditions will remain tight and uncertainty about the recovery will continue to weigh on lending in the near term.

29 November 2021

UK Commercial Property Data Response

IPF Consensus Forecasts (Nov.)

The resilience of the commercial property market has led to further upgrades to the IPF Consensus view for this year, albeit still below our forecast. Beyond this year, we are more downbeat about the outlook than the consensus given our expectation that work-from-home will have a more lasting impact on offices.

26 November 2021

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Non-Euro European Commercial Property Chart Book

Scandinavia & Switzerland: Strong investor demand

Data for Q2 confirm that, as with the economic recovery, the property upturn is more advanced in Scandinavia than in western Europe. Investment activity grew strongly, even when excluding a large one-off deal.  Prime all-property capital values also rose as rents surpassed their pre-virus levels while yields declined slightly. That said, this improvement was mostly driven by the industrial sector. Looking further ahead, we expect to see some slowdown in industrial occupier demand as economic activity and online shopping behaviour normalise. As such, given our view that structural factors will weigh on the retail and office sectors in the coming years, we expect the pace of all-property capital value growth to slow in H2.

25 August 2021

Non-Euro European Commercial Property Chart Book

Emerging Europe: Retail rental falls still on the cards

In line with the economic recovery, there were growing signs that property markets have turned a corner in Q2. All-property rents rose on the quarter, while the all-property yield dipped on the back of lower industrial yields. On an annual basis, industrial rents rose, while retail rents fell less sharply. Our forecast for the economic recovery to continue in H2 bodes well for occupier and investment activity. But we still expect the retail sector to struggle. Indeed, the weakness of tourist spending and the competition from e-commerce are likely to continue to drag on retailers’ incomes. Therefore, we think retail rents will end this year lower, along with office rents. In contrast, we forecast further industrial rental gains.

24 August 2021

UK Housing Market Update

Are PDRs the answer to mis-matches in supply?

New plans have extended Permitted Development Rights (PDRs) on commercial property, allowing swifter conversion to residential use. These have been cautiously welcomed, but, in our view, they do not radically shift the outlook for either residential or commercial markets. In view of the wider interest, we are also sending this UK Housing Market Update to clients of our UK Commercial Property service.

18 August 2021
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