First the good news.
Forecasts for rental and capital growth in 2017 have shifted – in the right direction. The latest IPF consensus forecast, based on the view of 24 commentators, shows increased expectations for both rental and capital growth in 2017.
The all-property total return for the calendar year has improved to 4.8%, from 3.2%.
The rental growth forecast average for 2017 has risen to 0.6%, up from the 0.2% reported in February (and -0.5% in November and -0.7% in August 2016). Sector outlooks have ticked up, with average forecasts ranging from 2.7% for industrial rents (previously 1.8%) to -1.1% for offices (back from -1.3%).
But it is in capital values where you will find the real headline: there is no longer a consensus that all-property capital values will fall significantly in 2017. A standstill of -0.1% is expected; a fall of -1.6% was previously predicted. Again this varies from 1.4% for industrial to -2.4% for offices.
Now the buts.
These forecasts were made between the end of February and 10 May, a tumultuous period that saw the triggering of Article 50 (29 March) and the calling of a General Election (18 April). So when these forecasts were made during that period would have had a considerable impact on their positivity. If most were made in March, forecasters may have grown less confident since.
Putting timing to one side, and despite the short-term encouragement, there is also caution further out. Medium-term expectations have weakened for rents and capital growth, with most current projections lower than those recorded three months ago.
The all-property total return for 2019 now averages 4.9%, down from 5.8%, with forecast growth for 2020 and 2021 also downgraded.
It is not just these forecasts that strike a note of caution. Net lending to the property sector fell slightly in April. Perhaps, as Capital Economics believes, this weakness reflects “liquidity issues in the investment market, rather than increased risk aversion among lenders”, but it still begs the question of whether the money is moving into risk-off mode.
Investors paint a similarly mixed picture. With property returns still offering a decent spread over bonds, a scarcity of new supply and no credit bubble ready to pop, there are plenty of underlying reasons for positive sentiment. Yet these are tempered by political uncertainty, the march of digital and its potential impact on the physical world (especially in retail) and the influx of Asian capital, against which domestic investors are struggling to compete (CIC meet Logicor, pages 15 and 22).
There have been plenty of big months over the past year. But with the election on 8 June and the start of Brexit negotiations on 19 June, when it comes to determining confidence for the near-term, the month ahead may just be the biggest yet.
As agent M&A rumours continue to swirl – yes, you in the City and you in the West End, we’re watching – a chart in a CBRE investor presentation filed with the US Securities and Exchange Commission this week struck a chord.
The green machine detailed its M&A strategy, where deals are driven by “strategic infill acquisitions sourced principally by lines of business [and] highly targeted larger, transformational transactions”.
Some 40 acquisitions since 2013 and 110 since 2003 have met these criteria.
Alongside a colourful, complicated chart listing the firms in play in recent years, CBRE says it has done five of the 12 mergers undertaken and did not bid on the other seven.
Will it maintain the pace? Perhaps not. The filing stresses CBRE’s “proven willingness to step away when markets are frothy”.
Will others – whether driven by ambition or distress – prove as reserved over the summer?
To send feedback, e-mail damian.wild@egi.co.uk or tweet @DamianWild or @estatesgazette
