An industry study released on Thursday revealed that the commercial real estate sector in Britain is suffering the effects of rising borrowing rates, with investor inquiries falling in the fourth quarter and the forecast for the next year worsening (Jan 26).
Eighty-three percent of those who responded to a quarterly commercial property poll by the Royal Institution of Chartered Surveyors (RICS) indicated they believed the market was already in a slump, up from eighty-one percent in the previous quarter. Nearly half of the respondents said this recession was just starting.
The RICS reported a first-ever decline in investor inquiries across all sectors since the start of the epidemic, with a net balance of -30 of the respondents attributing this to weaker investment demand.
Tighter monetary policy from the Bank of England has “seriously damaged” the investment aspects of commercial property (BOE). Investor demand was dampened, and value was dragged down, because of rising borrowing rates.
During its previous nine sessions, the Bank of England’s Monetary Policy Committee increased the key interest rate. For the meeting on February 2, the markets are pricing in a 4% hike, a half percentage point more than what is currently expected.
In December, consumer price inflation in Britain was 10.5%, more than five times the Bank of England’s 2% objective.
Expectations for capital values in the near future fell drastically across all sectors, with the industrial sector recording the poorest score since 2011.
Capital value declines have been “noticeable of late,” according to Parsons, and this trend is “linked to the increase in government-bond rates over the previous six months,” he said.
Predictions of additional declines in average capital values were made for every region of Britain.