UK Commercial Property Outlook: Higher gilt yields and taxes to weigh on recovery

With the 10-year gilt yield now set to be higher for longer and the Budget likely to raise taxes on households, the outlook for commercial property has become a bit gloomier. We now expect total returns of 7.2% p.a. at the all-property level over 2026-29, a slight downgrade on our previous view. Residential is set to outperform with returns of just over 8% p.a., as tight supply supports rental growth, while high-yielding sectors such as retail warehousing will also do relatively well. The office sector however will continue to struggle as a weak labour market weighs on demand and the costs of meeting environmental standards reduces demand for older stock.