Although the economic outlook remains mixed, the quarter ended with inflation in line with the Bank of England’s target, a precursor to a long-awaited reduction in the base rate. Our agents are bullish regarding capital values and rent levels in key sectors including the Industrial and Land and Yards sectors where demand continues to outstrip supply.

Although challenges remain, key economic indicators give cause for optimism. GDP is trending upward, and inflation is edging closer to the Bank of England’s target. Member sentiment varies by sector, but there is notable positivity in the Land and Yards and Industrial sectors. Supply and demand imbalances remain, most notably in the Pubs and Restaurants sector, which continues to be impacted by changing trends.

It is clear from member sentiment, that economic uncertainty, and interest rates in particular, are continuing to weigh on the commercial property market. Supply and demand imbalances continue in key sectors, suggesting that there will be a challenging start to 2024.

The base rate was held in September, GDP is growing slowly, the construction materials price index is decreasing, and Propertymark Commercial agent sentiment is increasing in several key areas. However, economic uncertainty remains and improvements in sentiment are generally from a low base.

The commercial property market has seen a sluggish start to 2023. Since the Kwarteng budget of September 2022, the market has been subdued. And while we have continued to see small gains in capital values, there seems little drive in the market from investors at present. These patterns are clearly reflected in our latest Commercial Outlook.

NAEA Propertymark Commercial agents reported a more positive outlook for many sectors compared to last quarter. Better than anticipated performance of the UK economy and resettling after the Truss/Kwarteng budget have resulted in improved expectations.

The worst outlook for the next year remains in the pubs and restaurants sector. With cost-of-living concerns, energy prices and interest rate rises affecting tenants’ bottom lines, combined with liquidations leading to rising supply, rental levels are expected to decline along with capital values and investment yields.

This is the first iteration of the Propertymark Commercial Outlook. The report is based on a survey of NAEA Commercial agents combined with an analysis of key economic forecasts for the UK to equip interested audiences with the most up-to-date information on the commercial property market for the coming quarter.