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UK Real estate – Overview Q1 2024

Returns and outlook

  • Total returns for the UK commercial property market turned positive in Q1 2024 with the MSCI UK monthly index recording a return of 0.6% (0.3% on a 12-month basis to March). Retail was the best-performing sector with a total return in the three months to March of 1.5%. Offices continued to struggle and were the only sector to register negative total returns in the first quarter, coming in at -1.4%.

  • All-property capital values declined by 0.8% in the quarter and by 5.3% on a 12-month basis. Despite ongoing economic headwinds, income returns remained positive in Q1 2024 at 1.5% (5.8% on a 12-month basis), demonstrating the resilient income credentials that underpin the UK commercial property market.

  • Income returns will underpin the expected improvement in total returns while yield-driven capital growth is likely to be limited, at least in the short to medium term. This will drive the continued divergence in performance across property types. Over time the benefits of looser monetary policy will increase activity, but the impact is unlikely to be seen fully until 2025. 2024 will continue to see the impact of the 515bps of tightening seen since late-2021 feeding through to the real economy.

  • The all-property net initial yield at the end of March 2024 was 5.6%, up marginally from 5.5% in Q4 2023. With the era of ultra-low interest rates behind us there is further value correction to come, although it is expected to bottom-out by the middle of the year. This, alongside more conservative loan to value ratios, increased margin costs and potentially elevated rates of under- and nonperforming loans, could see more instances of bank-forced sales creating further opportunity for market dislocation.
22 May 2024
Joanna Tano
Joanna Tano
Head of Research, Europe, Real Estate (EMEA)
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UK Real estate – Overview Q1 2024

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