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Icy headwinds cause Colliers to downgrade forecasts for 2022

28 11 22 Icy headwinds cause Colliers to downgrade forecasts for 2022 hero

Despite the UK heading into a recession, the pricing correction in the commercial real estate sector will be short and sharp, with greater stability expected towards the middle of 2023, according to Colliers’ latest Real Estate Investment Forecasts (REIF).


The real estate firm has downgraded its 2022 total returns forecast from previously +5.9 per cent to -5.0 per cent in the face of downgraded GDP predictions, higher gilt rates, base rate uplifts and accelerated outward yield movements. In previously low yielding sectors, such as industrial, it predicts yield shifts of up to +150 bps. 

Oliver Kolodseike, director in the Colliers Research team, comments: “We are in the middle of a pricing correction with yields rising rapidly across most asset classes. Given a significantly gloomier economic outlook than a few months ago when we published our Q3 REIF, we downgraded our commercial real estate forecasts accordingly. Although we now predict the largest contractions of total returns since the double-digit decline in 2008, the contraction is far more modest and we believe that the sector will return to a positive trajectory more rapidly by the middle of next year when inflation begins to fall, the Bank Rate stabilises and gilts fall back on the back of increased investor confidence.”  

Despite uncertain economic headwinds that will continue to destabilise capital markets through Q1 2023, occupational markets will show greater stability. This is especially true for the industrial sector, but also prime and upper secondary office stock. The performance of offices will nevertheless show an increasing gulf between Grade A ESG compliant space and the rest notes Colliers. 

Colliers notes that the investment forecasts are not uniform across the board. Beds and sheds are highlighted as the most resilient due to sustained levels of occupational demand arising from links to demographic drivers and continued structural change in the industrial sector. 

Retail will fare less well, although retail warehouses are predicted to be the best performing asset class in 2023 with rental growth of 1.5 per cent per annum. For retail overall, the firm predicts total returns growth will slow from 10.4 per cent in 2021 to 0.6 per cent in 2022 before picking up to 5.2 per cent in 2023. 

In offices, total returns will fall -7.3 per cent year on year, driven by double-digit declines in capital values. This is a marked downward revision from the 2.4 per cent growth predicted in the Q3 REIF. Total returns will then see marginal growth of 1.2 per cent next year before accelerating to 7.2 per cent in 2024 as yields stabilise and then re-compress. 

John Knowles, head of National Capital Markets at Colliers, adds: “This isn’t the first downturn of the commercial property market, and it certainly won’t be the last. For those investors who are savvy and willing to take on more risk there is plenty of opportunity out there. Sectors which are traditionally more inflation-proof such as the operational markets or industrial and logistics will weather the storm and remain good long-term prospects, although development will be challenged by yield softening, pressure on income and continued build cost inflation.”

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Oliver Kolodseike

Director of Economics and Research

Research and Forecasting

London - West End

Oliver is Head of Economic Research and leads the quarterly UK forecasting process including the publication of Colliers' Real Estate Investment Forecasts (REIF) report. He also  authors the monthly Property Snapshot and, quarterly Scotland Snapshot. Prior to joining Colliers, he worked for the Centre for Economics and Business Research and IHS Markit. Oliver holds a BA in Economics from  Georg-August University Göttingen (Germany) and an MSc in Economics from Exeter University.

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Walter Boettcher

Head of Research and Economics

Research and Forecasting

London - West End

As Head of Research and Economics at global property advisors Colliers based in London, I lead a team of researchers identifying timely research topics and directing research and forecasting outputs. I have 25+ years of UK and European property industry experience and extensive expertise across a wide range of sectors and related industries. I participate regularly in industry panel discussions, but am focused more on direct client engagement with institutions, property companies, banks, and private investors. A regular media commentator, I have a wide range of national publication and broadcast experience. I joined Colliers International in August 2007 after several years at a private property company where I was responsible for managing a mixed portfolio of London residential, retail and office assets. Previously, I worked in a few London property advisory firms, a geodemographic company as well as a few youthful sojourns in the US offshore oil industry, local government and entertainment business. I am an economics graduate of the University of Texas at Austin and received a  PhD from the Faculty of Science at University College London.  I am a member of the London Property Economics Forum and  Society of Property Researchers.

Perhaps best known for my alternative take on property economics and investment, I am a keen proponent of UK regional development and infrastructure investment.

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John Knowles

Head of National Capital Markets

National Capital Markets

London - West End

A highly qualified real estate professional, John has extensive knowledge of direct and indirect real estate and finance projects in Europe and Asia.

Prior to joining Colliers, John was MD Corporate Finance at DTZ and Head of Capital Markets at LSH. He has worked extensively in distressed debt and NPL situations and has concluded transactions in the last 12 months for Cerberus, Starwood and LBG.

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Rebecca Allen

PR Manager

Marketing & Communications

London - West End

I have been working in commercial property communications for over 10 years  having previously worked at CBRE and Savills.

In my role at Colliers I am responsible for the PR of National Capital Markets, London Offices and Investment Property  Management teams as well as Scotland.

My role includes:

  • Creating and exectuing PR plans for business lines that span press, marketing and digital channels
  • Media monitoring and reporting
  • Advising on brand, tone of voice and profile raising 
  • Journalist relationship building through face to face meetings, phone calls day to day assistance with stories
  • Reputation management of the Colliers brand

 

 

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