The introduction of tariffs on goods being exported into the US in April is the biggest change in world trade seen in a century.
As countries move quickly to try and agree trade deals, with the first deal with the UK, which reduces some tariffs, recently announced, the landscape remains uncertain, but the expected impact on trade and economic growth around the world means the IMF has already cut its forecasts for growth across all advanced economies. The outlook for UK GDP growth in 2025 has been downgraded from 1.6% to 1.1%.
President Trump’s tariff regime has also introduced new levels of volatility into financial markets. The MSCI World Index, dropped -6.0% in USD terms in Q1 and the dollar has weakened against all major currencies. Since the start of the year, the price of gold has risen 26% as investors look for any perceived safe-haven. Less volatile assets are looking increasingly attractive, but uncertainty can also delay investment decisions, although with interest rates set to fall, there will be an increasing imperative to look for good opportunities.
The sentiment of UK real estate investors had been improving as the market produced some strong performance numbers at the end of 2024, but this momentum stalled at the start of the year. In Q1, All Property total returns, as recorded by the MSCI Monthly Index, decreased by 80 bps to 2.0% from 2.8% in Q4 2024.
Further reductions in base rate are anticipated throughout this year. However, weak economic growth combined with a troublesome inflationary outlook and increasing risk-free rates have created strong headwinds that will slow the recovery in commercial property values in 2025. At the All-Property level, performance expectations for 2025 have been cut by two percentage points to 8.0%. Average annual total returns over the next three years are also expected to be 8.0%, down from a previous forecast of 9.0%.
