UK Property Slumps to Worst Quarter Since 2009 as Rates Bite - BLOOMBERG
Britain’s real estate sector recorded its worst return in more than 13 years in the third quarter of 2022 after a sharp rise in borrowing costs weighed on the industry.
The MSCI UK Quarterly Property Index, which tracks retail, office, industrial and residential property, plunged by 4.3% in the three months through September. That’s the worst performance since the second quarter of 2009, according to research published by MSCI Inc.
“The evaporation of property’s yield premium — amid the recent deteriorating macroeconomic outlook and rising inflation and interest rates — weighed on performance,” Niel Harmse, a senior associate in MSCI’s global real estate research team, wrote in the report.
For the first time since 2007, property yields fell below UK government bond yields. The difference between the net operating income yield of UK real estate and yields on 10-year gilts flipped to negative after a sell off in government bonds prompted by the announcement of unfunded tax cuts by the government at the end of the September.
The Bank of England staged an intervention to stave off a crash in the gilt market by pledging to buy bonds. The bail-out sparked a rally in UK gilts, which has since reversed the impact of the initial selloff.
In amongst the market turmoil, only retail property managed to keep its yield premium. The industrial sector, meanwhile, was hardest hit.