UK Commercial Property Outlook: Weak economy to weigh on property recovery

The economic outlook has worsened over the past couple of months, which supports our call that the recovery in commercial property will be modest by past standards. Admittedly, interest rates are set to fall back. But with the spread over gilts currently narrow, we do not expect much in the way of property yield compression over the next few years. We expect all-property total returns to average only 7.4% p.a. over 2025-29. The top performing sectors are residential, where strong rental growth will help total returns average just under 9% p.a., and retail warehouses (at 8.4%), which will benefit from strong income returns.