The Brief: MSCI reported that UK commercial property values dipped 2.6% in September, its largest drop in six years. MSCI head of EMEA real asset research, Tom Leahy, issued a gloomy market outlook brought about by ongoing uncertainties, as quoted by The Financial Times.
Why It Matters: The higher cost of borrowing driven by the five-year UK swap rates is blamed for the slump in commercial property prices. In August, CoStar reported that London’s office space availability has reached 31 million square feet, setting its highest record in 15 years.
Finanze® Foresights: Analysts have long expected a commercial property price correction to take place before the end of the year, but the steep drop was accelerated in September by the mini-Budget. This is exacerbated by the reduced footfall in retail centres and the high office vacancy rates because of work-from-home trends. A restoration of consumer confidence could bring transactions back to pre-pandemic levels, but this isn’t possible for now since household budgets are still pressured by inflation. Furthermore, businesses are battered by higher input prices and less favourable policies such as Jeremy Hunt’s decision to scrap the VAT-free shopping program for tourists in the country. On the other hand, the discounted property deals present huge opportunities for bargain hunters who are ready to compete with others through all-cash offers.
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