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MSCI UK Quarterly Property Index Annual Capital Growth (%)
MSCI UK Quarterly Property Index Annual Estimated Rental Value Growth (%)
40 30 20 10 0 -10 -20 -30 -40
15
10
5
0
-5
-10
-15
All
Retail
Office
Industrial
All
Retail
Office
Industrial
UK property market For the year to March 2024, the property market remained subdued as the impact of higher interest rates continued to be felt. The MSCI UK Quarterly Property Index reported an All Property total return of -1.0%, comprising -5.5% capital growth and 4.7% income return. This was a significant improvement on the -12.6% total return for the year to March 2023. In March 2024, the MSCI All Property equivalent yield was 6.6% (March 2023: 6.2%). The occupier market has recently shown more resilience than the investment market, with All Property ERV growth for the year to March 2024 recorded at 3.7% (March 2023: 3.5%). The All Property averages mask nuances at sector and sub-sector levels, with polarisation remaining a key theme. The charts above show annual capital growth and ERV growth recorded by the MSCI UK Quarterly Property Index, with all property depicted in the bars and the sectors with the markers. Of the three main sectors, industrial was the best performer, both in terms of investment returns and rental growth. Standard industrial market fundamentals are particularly favourable, with continued healthy demand for well-placed units and low levels of supply. The MSCI Industrial total return for the year to March 2024 was 4.4%, comprising capital growth of 0.0% and an income return of 4.3%.
Looking at sub-sectors, capital growth ranged from -0.9% for Distribution Warehouses to 1.7% for Standard Industrial – London. In March 2024 the MSCI Industrial equivalent yield was 6.0% (March 2023: 5.7%). Industrial rental growth for the year to March 2024 was 6.5% and strong in all sub-sectors, ranging from 5.7% for Standard Industrial – Rest of UK to 7.0% for Standard Industrial – London. The office sector is still undergoing a period of recalibration, with increasing refurbishment and upgrading costs, combined with weaker and more selective occupational demand, impacting both pricing and investor sentiment. The MSCI Office total return for the year to March 2024 was -9.5%, comprising -13.1% capital growth and 4.1% income return. Office capital growth was negative across all sub- sectors, ranging from -18.7% in the Rest of London to -9.9% in Central London. In March 2024 the MSCI Office equivalent yield was 7.6% (March 2023: 6.7%). Office rental growth for the year to March 2024 was 2.8% and positive for all sub-sectors, ranging from 0.5% for the Rest of London to 4.6% in Central London, however, these rental growth numbers do not reflect capital invested into upgrading space. The retail sector has shown signs of stabilisation, aided by easing inflation and a recovery in real earnings positively impacting consumer confidence. However, store closures and CVAs still remain a feature of the market and not all sub-sectors are recovering at the same pace.
The MSCI Retail total return for the year to March 2024 was -0.2%, comprising capital growth of -5.9% and income return of 6.0%. Retail capital growth ranged from -8.3% to -1.0% between sub-sectors; Supermarkets experienced the strongest fall in capital values, whereas Out of Town Shopping Centres was the best performer. In March 2024, the MSCI Retail equivalent yield was 6.8% (March 2023: 6.6%). Retail ERV growth was 1.0%, with sub-sectors ranging from -1.6% for Shopping Centres – In Town to 3.7% for Department Stores. During the year there has been lacklustre transactional activity, due to the increased cost of debt and falling capital values. MSCI recorded £40.1 billion of investment transactions for the year to March 2024, which is 27% down on the £55.4 billion recorded for the year to March 2023 and 51% lower than the £82.1 billion transacted in the year to March 2022. Transactions in the industrial sector had the highest weighting, comprising 24% of the total. With interest rates anticipated to reduce from the second half of 2024 and increased liquidity in the lending market, it is expected that trading activity will begin to pick up as we head towards the end of the year.
Picton Property Income Limited / Annual Report 2024
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