Globally, moderating inflation and steady growth are leading to a soft landing amid rising anticipation of cuts.
In the UK, GDP growth remains particularly weak but increased consumer expenditure over the holiday period may save the economy from a second consecutive quarter of negative growth. UK inflation has rapidly reduced to 4.0% year-on-year, but domestic wage rises may delay the point when inflation is once again below the MPC’s target 2.0%. Consequently, some commentators are anticipating that interest rates could fall to 3.0% by the end of 2025.
MSCI’s All Property total returns decreased to -1.2% in Q4 from -0.2% in Q3 as capital values fell by -2.6%. However, in the 12 months to the end of December, All Property total returns improved to -0.1% from -13.6% in the year to September as weaker numbers from Q4 2022 fell out of the calculation.
2023 was a good year for equity markets. The MSCI World Index ended the year 17.6% higher and the NASDAQ rose 43.2% driven by investors support for the “Magnificent 7” tech stocks and hopes surrounding Artificial Intelligence. UK REITs enjoyed a strong end to the year suggesting investor confidence in the outlook for UK real estate in 2024 and beyond. The re-pricing of UK gilts delivered total returns of 9.2% in the fourth quarter.
Monetary policy will only be loosened cautiously. As a result, any expectations of sharply higher All Property returns in 2024 are unlikely to be met. Nevertheless, All Property returns could reach 6% 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.
