Before the news that core inflation was likely to remain higher for longer and interest rates will continue to rise, a group of property forecasters were getting more optimistic about the sector's prospects.

Forecast data was provided by 18 organisations to create the Investment Property Forum spring 2023 consensus forecast in the days leading up to 19 May 2023, and the mood was improving.

The all-property annualised five-year forecasts for 2023-2027 were all better than those made in the previous quarter. Expected rental growth stood at 1.8%, up from 1.4%, and forecast capital growth was up to 1.3% from 0.7%. Total returns were pegged at 6.1%, a slight improvement on 5.6%.

The consensus forecast suggested a special fondness for growth prospects in the retail warehousing sector.

Retail warehouses are expected to outperform in 2023, with a return of 4.4%, while City of London offices are forecast to underperform the rest of the market with a negative return of 4.6%.

Over the five-year time period, the retail warehouse sector is the projected top performer, with a return of 7.4% a year, ahead of industrial at 7% a year. City of London offices lag the other sectors with an expected annualised return of 4.1% a year.

The prospects for the retail warehousing sector appear to be improving. Whilst all sectors will experience a fall in capital values in 2023, the greatest adjustment since the last quarter is to the retail warehouse forecast, which has been upgraded by 450 basis points from negative 6.2% to negative 1.7%.

The logistics and industrial sector, long a darling of investors, continues to offer robust rental growth, forecasters agreed. The upgraded five-year forecast shows an annual uplift of 3.3%, an improvement of 75 basis points from the previous quarter. Over the next five years, the industrial sector has the strongest capital value growth forecast, at 2.5% per year.

West End office landlords will be comforted that the only other sector to outperform the all-property average is the West End office market, with a projection of 1.9% a year, an upgrade of 100 basis points.

The City and West End office markets face very different fates, according to forecasters. The West End is expected to realise growth of 1.1%, while City rental levels are forecast to decline by 1%. Both forecasts have strengthened from the previous quarter, and both are expected to outperform the rest of the UK office market.

From 2024 onward, City rental growth is also expected to turn positive and, for subsequent years, forecasts across the two markets are more closely aligned than for the first two years.

Five days after the creation of the forecast, on 24 May, the Office for National Statistics published the latest update showing core UK inflation rising from 6.2% to 6.8%, sparking fears of further interest rate rises. Until then, the hope had been that interest rates had peaked.