UK Commercial Property
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Slight worsening in property valuations

On our measure, property looked slightly worse value relative to bond and equities in Q2. The worsening was due to a marked fall in property yields, driven by the industrial sector. Outside of over-valued industrial, all other property sectors remained either undervalued or fairly valued. Looking ahead, our view is that gilt and property yields are likely to stay close to their current levels in the coming quarters, which should keep valuations steady.
Prohad Khan Property Economist
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Annual property returns hit a seven-year high

Commercial property ended last year strongly. Annual rental growth climbed to a five-year high, while annual total returns crossed the 20% level. This was largely the result of dynamism in industrial, though all sectors saw positive annual returns, even retail. But we think it will be a struggle to repeat this stellar performance in 2022, as economic headwinds and structural changes weigh on rental growth and the scope for further yield reductions reduces. As a result, we expect returns to be significantly lower in 2022.

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Industrial yield falls set to slow

The industrial sector had its best year in over three decades in 2021 as demand soared and supply struggled to keep up. Although we expect the sector to perform well again this year, we don’t think that yields can continue to fall at the rate seen in 2021.

20 January 2022

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Which assets can provide the best inflation protection?

Recent data have reinforced concerns about inflation risks in the UK. We remain of the view that property investments provide only limited long-term protection against higher prices, but of the individual asset types, we think industrial and residential are best placed to weather any surge. In view of the wider interest, we are also sending this UK Commercial Property Update to clients of our UK Housing Service.

14 January 2022

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RICS Construction Market Survey (Q2)

The latest RICS survey confirmed that construction activity rose strongly in Q2 and suggests expectations are upbeat about the outlook. But while we think output is likely to remain strong in the coming quarters, we expect that concerns about commercial values will eventually weigh on activity.

5 August 2021

UK Commercial Property Data Response

RICS Commercial Property Market Survey (Q2)

Surveyors indicated that both occupier demand and investment enquiries improved in Q2 on the back of stronger industrial activity. Looking ahead, expectations for office and retail values are less pessimistic, but it is likely to be the industrial sector that leads any upturn in commercial property.

29 July 2021

UK Commercial Property Data Response

Lending to commercial property (June)

As the economic recovery gathers pace, lenders have been less willing to grant further payment holidays to landlords and a rise in repayments probably explains the sharp decline in net lending in June. Looking ahead, we think a slow recovery in transaction activity and tight credit conditions will weigh on lending to commercial property this year.

29 July 2021
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