UK commercial property extends downturn as investors retreat: survey

BRITAIN’S commercial real estate sector is increasingly feeling the pinch of higher borrowing costs, as investor enquiries declined in the fourth quarter and the outlook for the year ahead worsened, an industry survey showed on Thursday (Jan 26).

The Royal Institution of Chartered Surveyors (RICS) said 83 per cent of the respondents in its quarterly commercial property survey thought the market was already in a downturn, up from 81 per cent in the previous quarter. Almost half considered this downturn to be in its early stages.

Investor enquires fell across all sectors for the first time since the start of the pandemic, with a net balance of minus 30 of the respondents citing lower investment demand, said the RICS.

Tarrant Parsons, senior economist at the RICS, said that the investment side of the commercial property market was “significantly affected” by tighter monetary policy from the Bank of England (BOE). Higher borrowing costs were also weighing on investor demand and hurting valuation.

The BOE’s Monetary Policy Committee raised its main rate at its last nine meetings. Markets have priced in a half-percentage-point increase of 4 per cent for the Feb 2 meeting.

British consumer price inflation was running at 10.5 per cent in December, more than five times the BOE’s target of 2 per cent.

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Near-term capital value expectations dropped sharply across the board, and the industrial sector marked its weakest reading since 2011.

“Linked to the rise in government-bond yields over the past six months, capital values have pulled back noticeably of late, while expectations point to this downward trend continuing over the near term,” Parsons said.

Average capital values were forecast to fall further in all parts of Britain.

The survey of 940 companies was conducted between Dec 7 and Jan 13. REUTERS