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INSIGHT

Economic and property market review

May 2023

DATA & ANALYSIS

Economic data

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Property market occupier data

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Property market investment data

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MARKET CONDITIONS

Economic trends

  • The short-term outlook for the UK and global economies has become clouded by a series of bank failures and rescues in the USA and Europe. At the time of writing, regulators appear confident the crisis will be limited to a small number of banks, although financial markets have become volatile and the situation is fast moving.
  • The Office for Budget Responsibility's latest forecast predicted the UK will avoid a technical recession in 2023. In general, many recent economic indicators, while clearly subdued, have exceeded forecasts. For instance, the Q4 GDP figure was revised upwards from zero to 0.1%. Late last year most commentators were expecting a negative reading for Q4.
  • Recent months have seen the economy move into a ‘stop, go’ pattern, where GDP growth has periodically ground to a halt or contracted. GDP turned negative by -0.5% in December 2022, then rebounded to 0.4% in January 2023, then flatlined in February.
  • CPI inflation fell by less than expected to 10.1% in the year to March 2023, down from 10.4% in February. Headline inflation is widely expected to trend downwards over the course of this year.
  • At the March meeting of the Bank of England's Monetary Policy Committee (MPC) the decision was taken to increase the UK base rate by 25 bps to 4.25%. We believe the base rate is now approaching its peak for this hiking cycle, probably with another 25 bps hike coming in May.
  • The unemployment rate was 3.8%, which was slightly up on the January figure of 3.7%. Nevertheless, this is low by historic standards and indicates a tight labour market.
  • The UK composite Purchasing Managers’ Index (PMI) declined in March to 52.2 from 53.1 in February. A reading of above 50.0 suggests the economy is expanding.
  • GfK's consumer confidence index stood at -30 in April, up from -36 in March, reflecting the recent easing in the rate of inflation.
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Property market

  • Oxford Economics is currently predicting 0.3% full year GDP growth in 2023, then 1.3% in 2024 and 2.3% in 2025.
  • Recent months have seen the UK property investment market move into a downturn in the face of rising interest rates and a subdued economy. Occupier markets are showing initial signs of deceleration, and we expect them to be in a downturn by the Summer.
  • Some open-ended property unit funds have imposed restrictions on the payment of redemptions, which is usually a sign of investor uncertainty. This will probably lead to some stock coming to the market for sale as the funds move to raise cash.
  • Rolling investment volumes across the UK in the year to March 2023 totalled £50.5 billion, which is down on the February figure of £55.5 billion, but just ahead of the long-term average of £59.4 billion. Sales volumes in recent months have been ebbing.
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Offices

  • Office rental value growth slowed marginally in March, with the MSCI Market Rental Growth Index for offices rising by 0.17%, compared to 0.19% in February.
  • The MSCI capital value growth Index for Offices decreased by -0.86% month-on-month in March, compared to -1.11% in February.
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Retail

  • In April 2023, UK retail footfall was 4.7% higher than the same month in 2022, according to Springboard. Compared to April 2019, footfall was down by -12.0%.
  • Retail capital values rebounded in March with the MSCI index rising by 0.72% m-on-m, up from -0.45% in February. The return to growth was entirely driven by retail warehouses (1.25%).
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Industrial

  • The MSCI industrial rental growth index increased by 0.73% m-on-m in March 2023, compared to 0.55% in February.
  • The MSCI capital growth index for industrial rose by 0.64% month-on-month in March 2023, compared to -0.70% in February.
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Housing

  • The Nationwide House Price Index reported a -2.7% fall in the year to April 2023, up from -3.1% in the 12 months to March. Month-on-month the index grew by 0.5%.
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Outlook

  • For both the commercial and residential property markets the high level of economic uncertainty and evidence that prices are correcting have encouraged a ‘wait-and-see’ attitude among real estate investors. Across the markets there are reports of a mismatch between buyer and seller expectations on pricing.
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