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The Wisdom Of Crowds Says 2020 Will Be Good For London Offices But Retail Has Much Further To Fall

The IPF UK Consensus Forecast has predicted that the picture for London office rents and values is going to get rosier in 2020, but the beleaguered retail sector is going to see more big falls in 2020 and beyond.

The forecast compiles the prognostications of 23 organisations including fund managers, investors and advisors looking at rental and capital value growth in the main property asset classes.

The consensus for commercial property as a whole is that total returns will improve in 2020, coming in at 2.5% compared to the 0.9% expected for 2019. But within that overall number, the fortunes of various sectors are expected to diverge hugely.

West End offices are expected to see total returns rise from 3.9% to 4.6%, while City offices are anticipated to see returns rise from 3.3% to 4%. Both markets could get even better in 2021, with total returns of 5.6% and 6%, respectively. Rents and values in both markets will rise by about 2% in 2021, the forecast said.

Industrial is likely to see returns moderate in 2020, dropping from 6.6% in 2019 to 6.1%. Those figures would still make it comfortably the best performing sector.

But retail is set to be a drag for investors, shopping centres in particular. Shopping centre rents are anticipated to finish the year 5.3% down, and capital values 15.4% down. The IPF forecasts that rents will drop a further 4.5% in 2020 and 2.3% in 2021, while capital values will fall 10.2% next year and 4.5% in 2021.

Retail warehouses fare better, but not much. Values are expected to fall by 7.6% in 2020 following a 12.7% fall in 2019; and rents are expected to fall by 3.4% after a 4.3% decline in 2019.

High street shops are expected to fall in value by 6.8% in 2020 after a 9.4% drop in 2019; and rents are expected to decrease 3.1% after a 3.6% fall this year. Even the best performers in retail are anticipated to see significant declines.