UK real estate returns have fallen to record lows since 2008
In the UK, Q4 was a disappointing quarter for the commercial real estate market. Real estate returns here fell by 11.9%. This decline is considered the maximum since 2008, the reason for such dynamics experts call the increase in interest rates. An important role in the fall of returns also plays a revision of loan terms – local banks have tightened the rules for obtaining financing.
To calculate the analysts took as a basis a quarterly index, whereas the study takes a large number of real estate. The index includes 7375 objects, mainly industrial and commercial premises, and offices, the value of which is 140 billion pounds.
The UK commercial real estate sector is going through a difficult period and it is difficult to say when it will end. The record rise in inflation that the Kingdom and the world are facing has created economic uncertainty that is having a negative impact on the local market. In order to minimize the risks, a number of real estate funds in the country have introduced a limit on the withdrawal of funds. The reason for the restrictions was the massive sale of assets by various pension programs in order to have cash on hand during the crisis.
Rising interest rates reduce the demand for facilities, investors prefer to wait out the difficult period so as not to lose money. At the same time, the Bank of England has revised the rate 10 times since the end of 2021, and it is unknown whether there will be a new increase.
Despite the difficulties and the global crisis, the demand for luxury real estate in London continues to grow. According to Knight Frank, in January 2023, inquiries in this segment were 6% higher than in the same period in 2020. The good activity was also observed in November and December 2022. It should be noted that the results of activity both in the capital market and in the UK as a whole exceeded analysts’ forecasts. At the same time, real estate in London is developing separately from the rest of the country, in the metropolis demand is always much higher.
In addition to increasing the number of potential buyers of luxury real estate for the first month of 2023, increased supply. The number of new objects on the market was the highest in the last 10 years.
Despite such an optimistic start to the year, experts are not in a hurry to predict rapid growth. In their opinion, the market will soon face a new test associated with the conclusion of almost all loans at a rate below 4% for a period of 5 years.
Previously, experts predicted that in 2023 the cost of luxury housing in central London will fall by 3%, and in remote areas is expected to fall by 4%. However, talking about the accuracy of such assumptions is not yet worth it.