UK Consensus Forecasts November 2014 Released

UK Consensus Forecast November results: 2014 on course to deliver best performance figures since 2006

The last quarter has seen survey contributors further increase their predictions for 2014, with the mean All Property total return forecast rising to 18.9% (from 17.0% in August and 13.7% in May).  Rental and capital value growth average projections have risen to 3.1% and 12.6% respectively (from 2.8% and 10.9% three months ago), the latter driven by double-digit growth for offices (17.0%), industrials (14.9%) and standard retail (up to 10.0% from 8.9% in August), matched by increased rental growth projections in each of these sectors for the current year.  However, this confident outlook is relatively short-lived and projections moderate considerable over the remaining years of the forecast period. 
Other key messages from this quarterly review of industry forecasts are:

Clear expectation of overall performance peaking in current year
• Reduced rental value growth expectations in the Shopping Centre and Retail Warehouse sectors have been more than offset by improved capital growth figures, leading to 2014 total returns projections ranging from 15.1% for Standard Retail and Shopping Centres to 22.6% for Offices, whilst the All Property total return forecast has risen to 18.9%. 
• For rental value growth, the 2014 All Property forecast has risen to 3.1%, from 2.8% in August, driven primarily by the Office forecast figure of 6.7%, with continuing, albeit more modest, improvements in sector level forecasts for Industrials and Standard Retail. 
• In 2014, the major contributor to the total return measure of performance remains capital value growth, with the greatest recorded increase in individual sector forecasts over the quarter being for Industrials, where the average projection has risen by over 200 basis points, to 14.9%.  Led by an average Office forecast of 17.0% (from 15.0% in August), the All Property capital value growth rate now stands at 12.6% (from 10.9% three months ago). 

2015 forecasts broadly firmer but downward trajectories of all measures maintained
• Whilst average capital value growth rates are expected to fall back substantially next year, the majority of 2015 forecasts for both rental and capital value growth have firmed over the last three months, the exception being for Retail Warehouse rental growth, now expected to average 1.6% in the year ahead, from 1.7% in August. 
• At the All Property level, rental value growth is now expected to fall to 1.9% by 2018, whilst the rate of capital value decline is predicted to accelerate to just below zero by the end of the forecast period.  The wide variations between individual sectors in the earlier years of the survey diminish with time.  
• As total returns forecasts reduce, the performance rankings between sectors shifts, with the Industrial sector outperforming Offices in 2016 and the latter expected to be the weakest market segment for the last two years of the survey period. 

Five-year averages distorted by 2014
• Annualised rental and capital value growth rate averages have increased over the quarter (to 2.7% and 3.6% respectively), by virtue of further improvement in near-term expectations, although not achieving the level of long-run averages. 
• As previously noted, the All Property five-year total return average forecast (currently 9.2%) is exceeded only by the 2014 and 2015 average forecasts, with performance prospects falling to below 6.0% in the last two years of the survey. 
• Using 2014-2018 numbers flatters the outlook, whereas removing 2014 from the average would give a very different picture of the market going forward.  By omitting 2014 from the forecast, the resultant 2015-2018 four-year averages would be 2.6%, 1.6% and 6.9% for rental and capital value growth and total returns respectively. 
 

UK Consensus Forecast Summary Report (November 2014)

 

Uk Consensus Forecast Full Report (November 2014)

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