UK property values to drop by 10% in 2020, says DWS

DWS expects the UK’s prime real estate values to fall by around 10% this year. This drop in values will be felt mainly in the retail sector, but the firm warned offices were also vulnerable to a price correction. DWS added, in its latest UK real estate strategic outlook report, that it also did not expect to see a “rapid rebound” in property values. Furthermore, DWS predicted more pressure on office rents on the back of large-scale job losses stemming from the unwinding of the government’s furlough scheme. The end of the Brexit transition period at the close of the year will also add to a rocky second half for the property sector, DWS said. Even so, the firm expects the UK real estate market to be one of the best performing in Europe over the next five years, but to be able to benefit from this it may require investors being active within it before the current economic and political uncertainties are resolved. DWS said this was partly due to UK property offering a premium over government bonds and other real estate markets in Europe. Currently, the London City office market offers a premium of close to 100 basis points to core Europe markets, while the circa 400 basis points premium over government bonds is a record high. The limited development pipeline will also help spur rental growth from 2022 in the offices sector, DWS said. The firm added that it saw opportunities in the urban logistics sector, with east London standing out due to its accessibility and relatively low rents, as well as in the London private residential sector, due to rising unemployment and mortgage restrictions. To send feedback, e-mail louise.dransfield@egi.co.uk or tweet @DransfieldL or @estatesgazette Photo © Image Source/REX/Shutterstock