Budget measures to weaken property recovery

The fiscal loosening announced in October’s Budget means inflation and gilt yields are now set to be higher than previously expected over the next few years. And with the spread of gilt yields over property yields currently narrow, that implies the latter will come under some renewed upward pressure. The boost to GDP growth is also not as positive as it may appear, with employment, earnings and consumption growth all set to be a little lower. That will constrain rental growth in most sectors. All-property total returns are therefore set for a relatively weak recovery of around 7.4% p.a. over 2025-28. The stand-out performer is set to be residential, where strong rental growth will help propel total returns to around 9.5% p.a. over 2025-28.