People queue for groceries in the financial district of Canary Wharf, London, Britain, on May 18, 2022. REUTERS/Kevin Coombs
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LONDON, July 28 (Reuters) – The UK’s commercial property sector is, or may already be, in a downturn, according to an industry survey, as higher interest rates are driving up investors’ funding costs and weaker consumer sentiment is hurting demand for retail space .
The Royal Institution of Chartered Surveyors (RICS) said on Thursday that 43% of respondents in its quarterly commercial property survey thought the sector was in the early stages of a downturn and another 10% said it was in the midst one.
In contrast, three months ago 53% said the sector was in the early or mid-stage of an upturn, a proportion that has now plummeted to 22%.
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“The gloomier macro outlook appears to be dampening sentiment in the commercial real estate market,” said RICS economist Tarrant Parsons.
“Given that interest rates will continue to rise from here, it appears the market is at an inflection point.”
UK consumer price inflation hit a 40-year high of 9.4% in June and financial markets are expecting the Bank of England to hike interest rates by half a percentage point to 1.75% next week, which would be the biggest rate hike since 1995 .
The market price of BoE interest rates hit 3% by early 2023 and RICS said credit conditions for real estate investments are now tougher.
“This appears to have dampened momentum in investor activity in particular, with total NPV forecasts flat on the back of it,” it added.
NPVs for retail space, which are bearing the brunt of cost-of-living pressures, have been forecast to fall directly. Demand for office space flattened out – particularly for second tier locations – while prospects for industrial locations such as warehouses remained strong, RICS said.
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Reporting by David Milliken Editing by William Schomberg
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