Despite a better-than-expected performance by the UK commercial real estate this year, most major property consultants and fund manager researchers do not believe the market will remain strong beyond 2018.
The Investment Property Forum鈥檚 (IPF) final UK Consensus Forecast report of 2017, which surveyed 22 researchers between the end of August and middle of November, found that expectations across all three performance measures 鈥� capital values, rental growth and total returns 鈥� have increased.
The research showed that the average forecast for rental growth for all sectors was 1.6%, up from 0.9% in August. Projections for industrial property have increased over 100bps from three months ago to 0.8%, while projections for offices have risen 62bps.
The research shows lower expectations for rental growth for all property types next year, compared with 2017. On a five-year average, performance is expected to 鈥渞emain relatively static鈥�, the report showed.
鈥淟ooking to performance prospects across the five years of the survey, averages are little changed over the previous quarter,鈥� IPF said.
Responding to the report, Capital Economics said that despite being 鈥減ersistently surprised to the upside during the course of 2017,鈥� most forecasters do not envisage that this year鈥檚 better-than-expected performance will be extended into 2018.
In a note by chief property economic Ed Stansfield, Capital Economics said: 鈥淲e agree that returns are likely to moderate. But we suspect that the consensus may still be underestimating the economy鈥檚 and the market鈥檚 resilience.鈥�
Capital Economics said commercial property forecasters have consistently underestimated the market鈥檚 momentum in 2017, 鈥渂eing too quick to price in a turning point for property yields and failing to see that occupier markets would not be significantly affected by the uncertainty generated by the Brexit process鈥�.
Capital Economics adds that, over the course of this year, 鈥渢he Consensus has quadrupled its forecast for rental value growth and reversed its forecasts for a marginal rise in yields鈥�.
The research group expects both investment and occupier markets to fare a little better than the IPF Consensus in 2018. 鈥淏ut there is a broad agreement about the likely direction of travel,鈥� it said.
鈥淭he bottom line, however, is that neither we nor the consensus see scope for yields to move lower regardless of how the economy and occupier markets fare鈥�
鈥淗owever, if our forecast for the economy to grow by 2% or more is right, there may still be some upside risks around the 2018 returns outlook.鈥�
