In the first nine months of 2024, the economy has been growing at the annualised equivalent of 2.0% and CPI inflation has fallen back below the MPC’s
2% target.
A further 25 bp reduction in Bank Rate is anticipated in November. A material risk to this favourable outlook is
posed by any escalation in the Middle East war that restricts the global supply of oil.
Tech stocks had mixed fortunes in Q3 and the NASDAQ index underperformed. Interest rate rises prompted a second consecutive quarterly fall in Japan’s Nikkei index but other global stock markets have enjoyed a positive quarter and the MSCI World Index rose 4.0% on a hedged GBP basis, or 6.4% in USD terms. UK REITS have
performed strongly over the last 12 months and this provides hope for the direct market in the underlying assets.
UK commercial real estate continued its plodding recovery in Q3 as MSCI’s All Property total returns increased by a mere 10 bps to 1.8% from 1.7% in Q2. Year on year All Property capital growth improved again but remained negative. The Shopping Centre, Retail Warehouse and Industrial sectors all enjoyed superior positive growth
in valuations.
As monetary policy is expected to slowly loosen, the first interest rate cut has had little impact on the performance of the commercial property market. A similar 25 bp reduction in base rate in November will have a similar muted effect. Accordingly, we have lowered our total return expectations for 2024 by a further 50 bps to 6.0%. A stronger recovery in 2025 and 2026 will require a bigger stimulus.