Commercial property examiner Q1 2024

At the end of Q4 2023, the UK entered the mildest of “technical” recessions after suffering from two consecutive quarters of falling output.

Output shrank by just -0.1% in Q3 and -0.3% in Q4. Since the turn of the year, there have been signs of an improvement. Growth of +0.3% was recorded in January and a further +0.1% in February. However, the latest forecasts for the rest of the year suggest that the UK’s economy will continue to limp along.

UK commercial real estate showed signs of recovery in Q1 as MSCI’s All Property total returns increased to 0.6% in Q1 from -1.2% in Q4 although capital values fell by a further -0.8%. In the 12 months to the end of March, All Property total returns improved to 0.3% from -0.1% in the year to December.

Over the course of the first quarter, office rental value growth increased to 0.8% from 0.7% in Q4 2023, while Q1 industrial rental value growth decreased to 1.1% from 2.2% a quarter earlier. Retail rental value growth was 0.1%. Market rental values for shopping centres fell back further but rental values for all other retail segments improved.

Falling inflation and a weak economy suggest that monetary policy will start to be loosened in the second half of the year. While expectations of sharply higher All Property returns in 2024 are unlikely to be met, they could reach 7% in 2024. Prospects for higher levels of performance strengthen in 2025 and 2026 and the annualised average forecast for the three years to the end of December 2026 rises to 8% or more. The risks to this forecast are judged to be balanced between a more benign outlook for the economy, inflation and interest rates and turbulence caused by geopolitical downside risks.


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Jamie McCombe


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