Forecasting Group Says Values Will Drop Further This Year, But Rents Will Grow
The spring 2024 UK Consensus Forecasts report from the Investment Property Forum UK has revealed that some of the industry’s major players are becoming gloomier about real estate prospects this year.
Compared with the winter quarter report, there was a small downgrade in the forecasted capital value growth and total returns in 2024 to 0.4% from 0.8% in the previous quarter, and 5.4% from 5.9%, respectively.
By contrast, rental growth expectations have been boosted from 2.0% to 2.3%.
The forecasts were provided for some or all UK sectors by 19 major organisations, and also highlighted confidence in the industrial sector, which is expected to achieve “robust rental growth” over the forecast period, with a five-year forecast of 3.2% per annum.
West End office rental growth is the only other sector expected to outperform the all property five-year average of 2.2% per annum, according to respondents, with annual growth of 2.7%. Shopping centres are forecast to experience the weakest rental growth at just 0.7% per annum, with rental decline this year.
With the exception of industrial and retail warehouses, all other sectors are expected to experience capital value decline in 2024, with positive growth returning to all sectors in 2025, the IPF survey predicted.
Over the next five years, industrial, at 4% per annum, will be the top performer for value growth, while shopping centre capital values are expected to remain close to the current level at the end of the five-year forecast period.
In addition, there is a significant divergence in 2024 total return forecasts between sectors. Retail warehouses and industrial are expected to outperform, with returns of 8.4% and 8.1% respectively, while offices are forecast to underperform with a return of just 0.7%. This is also reflected over the five-year time period, with industrial the top performer at a return of 8.5% per annum, just ahead of retail warehousing at 8.3%. Offices again lag the other markets, with an annualised return forecast of 5.8%.
Overall, there has been little movement since the winter quarter forecasting, with the all-property annualised five-year forecasts closely aligned with the previous quarter. In all, rental value growth is predicted at 2.2% per annum, the same as the previous quarter; capital value growth 2.5% per annum from 2.4% and total returns 7.5% per annum from 7.6%.
The 2024 results reflect a more pessimistic view from property advisors, with the return of 6.2% a 100bps decline on the winter forecast of 7.3%. By contrast, the fund manager forecast of 5.4% remains aligned with the previous quarter.
The companies contributing to the survey were Abrdn, Aviva Investors, BNP Paribas, Capital Economics, Carter Jonas, CBRE, CBRE Investment Management, Colliers, Alexander Property Research for Fletcher King, Knight Frank, LaSalle Investment Management, Legal & General Investment Management, Nuveen Real Estate, Real Estate Forecasting, Savills Investment Management, Schroders, Stifel and UBS Asset Management.
