'UK real estate values to fall despite temporary reprieve in March and April' - Oxford Economics

Published by

Tom Kilkelly

iStock

Forecasting firm Oxford Economics has reported that the 'temporary reprieve in March and April' for UK commercial real estate values will be followed by further falls.

The firm has warned that high inflation in the UK has raised the risk of financial distress in the real estate sector and predicts that commercial property values will fall a further eight per cent come the end of the year.

It has also been predicted that interest rates will increase, with Oxford Economics predicting that the Bank of England’s base rate will peak at 5% , up from its previous prediction of 4.5%. The firm also believes that the central bank will only begin cutting interest rates in early 2025, rather than Q2 2024 as previously forecast.

In a research briefing, the firm said: “This meaningful increase in the cost of debt raises the risk of commercial real estate distress as interest coverage ratios fall further, particularly concerning for those with higher loan-to-value ratios and fixed-rate loans maturing this year and in 2024.”

Offices are expected to be the hardest hit properties. Oxford Exconomics has said that most of the damage has already been felt in other sectors i.e Industrial assets.

This bleak forecast follows in line with the firm's predictions made during the 'temporary reprieve' for commercial property values in March and April. During that period Oxford Economics said: “We think this is a temporary reprieve with further falls to come as tighter credit conditions, rock-bottom sentiment, inadequate risk premia and high debt costs all continue to weigh on the outlook''.

The firm also only expects the sector to grow by 0.4 per cent in 2024 following the eight per cent decline predicted for this year.

Tom Kilkelly

Tom Kilkelly started working as a freelance journalist for The Business Magazine following his graduation from UCL in 2022. During his studies Tom became very interested in the works of Irish authors including Samuel Beckett and Flann O'Brien (Brian O'Nolan). His current role as a freelance business reporter is his first exposure to the world of business journalism. Working at TBM has given Tom the chance to really get to grips with the goings-on in the business hive that is the South East.