UK commercial property values to fall more slowly in Q2: RIB

A construction worker moves barriers at a construction site, with the City of London financial district seen behind
A construction worker moves barriers at a construction site, with the City of London financial district seen behind, in London, Britain, October 3, 2022. REUTERS/Henry Nicholls

LONDON, March 21 (Reuters) - Falls in British commercial property values are expected to slow in the coming months as the economy improves but high inflation and interest rates will continue to weigh on the sector, an industry survey showed on Tuesday.

Real estate firm Robert Irving Burns (RIB) forecast a 1.6% drop in sales prices per square foot in the second quarter of 2023 from the first three months of the year, a less severe decline than the 2.9% fall forecast in the first quarter.

Rental values are expected to decline 0.4% across the commercial sector.

"The sharp price correction we saw at the start of the year appears to be tempering ... and while both sales and rental values are expected to remain on the downward trajectory, it does feel like we're nearing the floor," Antony Antoniou, CEO of RIB, said.

Some measures of Britain's economy have improved in recent months and last week the country's budget forecasters said they no longer expected a recession this year.

Sales values across all sub-categories including retail, industrial and leisure were set to edge down in the second quarter with the office sector seeing the largest fall, down 2.7%, RIB said.

Despite more workers returning to the office following the COVID-19 lockdowns, nearly a quarter of respondents expected office space values to slip by more than 5% over the period.

Compared with the residential housing market, commercial property is less exposed to the cost-of-living crisis but it has been hit by a decline in investment and higher borrowing costs.

"Businesses ... remain focused on paying down debt rather than investing in any large-scale capital expenditure," Antoniou said.

The Bank of England increased borrowing costs at each of its last 10 meetings and economists polled last week by Reuters mostly expected it to lift its main interest rate to 4.25% from 4% on Thursday.

A better tone to Britain's relationship with the European Union and China's lifting of COVID-19 restrictions have helped to ease concerns about the economy, Antoniou said.

The second quarter would be a "buyers market" for investors with access to capital, he said.

The supply of property coming on the market is expected to rise by about 2.5% in the April-June period.

The RIB survey was based on responses from around 250 commercial estate agents between Feb. 16 and Feb. 24.

Reporting by Suban Abdulla Editing by William Schomberg

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