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Returns to cool significantly in 2022

The performance of commercial property exceeded expectations in 2021, with a particularly strong contribution from the industrial sector. But we don’t think that this momentum will last into this year, with high inflation and four interest rate hikes in 2022 expected to weigh on the outlook.
Pieter Du Preez Property Economist
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UK Commercial Property Outlook

Interest rate rises hasten property slowdown

The worsening monetary outlook is expected to weigh on property performance. With inflation set to peak at 10% y/y that will force interest rate to 3.0% next year. This will reverse the recent momentum in the commercial property sector, as yields flatten this year and rise from 2023. At the same time, outside of industrial, the rental outlook will remain weak and that means capital value growth will slow sharply this year and move negative in 2023-24. As a result, returns will dip below 5% p.a. in those years, albeit recovering again at the end of the forecast. Within this, we expect retail warehouses, shopping centres and leisure to outperform.

20 May 2022

UK Commercial Property Valuation Monitor

Valuations worsen to post-GFC low

Commercial property valuations worsened further in Q1 and now look overvalued. The spread between property and gilt yields narrowed to its lowest level post-GFC, but still has some distance to fall to reach the lows of 2007. With more interest rate hikes on the cards and gilt yields set to rise further, we expect property valuations to worsen over the next 12 months. See how UK commercial property valuations compare with the US and Europe on our new CE Interactive dashboard.

10 May 2022

UK Commercial Property Data Response

S&P Global/CIPS Construction PMI (Apr.)

The construction PMI for April showed that building activity remained solid, but that the pace of growth has slowed. An easing in new orders growth also hints at a further slowdown ahead, as the sector faces supply constraints, intensifying cost push pressures and higher costs of borrowing. UK Housing Drop-In (10th May 10:00 BST/17:00 SGT): Economists from our property team are hosting a 20-minute briefing to explain why we think UK house prices are heading for a fall – and how bad the fallout will be. Register now.

6 May 2022

More from Pieter Du Preez

UK Housing Market Data Response

IHS Markit/CIPS Construction PMI (Dec.)

The construction PMI declined last month to end the year on a negative note, more than erasing the gain made in November. Despite tentative signs that they are starting to ease, we expect labour and supply shortages will continue to dampen output in the near term.

7 January 2022

UK Commercial Property Data Response

Lending to commercial property (Nov.)

Declines in lending for both standing property and new developments resulted in total net lending moving back into negative territory in November. The outlook is for credit conditions to remain tight in the coming months, as uncertainty clouds the economic recovery.

4 January 2022

UK Commercial Property Update

Hotel occupancy will continue to struggle in 2022

International travel restrictions and domestic containment measures have dealt the hotel sector a massive blow over the last two years. The outlook for the sector is more positive, but a slow relaxation of restrictions, tourist hesitancy and reduced business travel mean that it is unlikely that the sector will recover fully in 2022.

22 December 2021
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