Capital values, which have been the main driver of returns overprevious years, will be the main casualty, with an increase of only0.4% predicted for 2006, compared to 6.5% this year and 11.4% in2005. As a result, yields will "bottom out and edge higher,"according to RICS.

|

Rising rents in specific markets will provide some level ofcounterbalance, however, with a steady increase of 1.6%, marginallylower than this year and last. But the slowdown in domesticconsumer spending as a result of interest rate rises and a weakhousing market is "a threat to rental growth in the industrial andretail sectors," RICS reports.

|

This could be exacerbated by any tax rises during the newparliamentary term and any continuing weakness in industrialproduction. Total returns in industrial and retail will fall to7.7% and 5.7% in 2006, from 14.5% for both sectors this year.Nevertheless, RICS predicts sluggish growth rather than a recessionin the UK, with GDP growth at 2.5% for both this year and next.

|

A robust world economy, on the other hand, as a result of oilprices receding from current highs, will result in corporateconfidence and the real prospect of rental growth in the officesector, particularly in London. Rents will rise by 1.9% in 2006,compared to 1.5% this year, although returns will drop to 6.1% from11.2% as a result of weakening capital values, RICS adds.

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.