This year is expected to mark the nadir of the current property cycle as total returns are forecast to plummet to 1.6%.
In the past three months the projected total return for all property in 2012 has tumbled from 4.5% to 1.6%, compared with last year’s return of around 7.8%, according to the latest IPF UK Consensus Forecast.
The particularly gloomy outlook is a result of economic constraints, including austerity measures both at home and abroad, compounded by the eurozone crisis.
The poor total return forecast reflects fragile sentiment for both property values, which are now expected to fall by as much as 4.6% this year, and rents, which are forecast to drop by an average of 0.8%, with only offices staying in positive territory.
Retail is expected to have the toughest year as shopping centres lose an expected 6.3% of their value while rents drop by 2.2%, followed by “other retail” with capital and rental value declines of 5.4% and 1.7% respectively.
In line with recent trends, offices are expected to fare the best, with values falling by just 2.9% and rents showing a marginal increase of 0.6%.
The survey, which canvasses 26 property advisers and fund managers on a quarterly basis, found that there was agreement that 2012 would be the bottom of the current cycle.
“This year’s total return is heavily impacted by negative capital value growth forecast but, as previously predicted, will not be sustained, with 2013 expected to be virtually flat in terms of capital growth,” the IPF said.
Looking beyond 2012, total returns veer back into healthier figures, with an expectation of 6.4% returns next year – buoyed by an expected 6.5% increase in rents – followed by 7.8% in 2014 when values start to rise again, to break the 8% mark in 2016.
Capital value and rental growth are also expected to return in three sectors – offices, standard retail and retail warehouses – in 2013, with all sectors back in positive territory by 2014.
bridget.o’connell@estatesgazette.com
