The economy giveth, yet the Bank of England hath taken away.

The UK economy’s steadfastness in avoiding a recession and higher inflation has propelled rental growth rates for the year a little beyond our initial projections. Nevertheless, the Bank of England’s resolute stance against shouldering blame for heightened inflation has led to a more prolonged increase in interest rates than originally foreseen. As a result, the boost in overall returns driven by the upward momentum in rentals has been offset by a further drift outward in cap rates.

While the prospect of distressed borrowers and declining interest rates has provoked desire in many investors, we harbour concerns that lower inflation will also taketh away from some of the performance. Inflation is easing some of the burdens in the retail and office sectors, allowing rents to adjust in real terms without the need to fall in nominal terms.

Investors should consider what a fall in the inflation rate will do for rental prospects and not just look to profit from a fall in interest rates.

For more information about the RES Forecasting Service please email contact@realestatestrategies.co.uk