Country Report Great Britain Q2-2022
“Long dated income and offices with strong ESG criteria stay very much in demand.“

Dear readers,

“With geopolitical events continuing to fan inflation central banks are applying interest rate increases more and more sharply. The bleak outlook of a period of recession and likely double-digit inflation has prompted the Bank of England’s latest rate increase by 0.5% to 1.75%, the highest increase in 27 years. Present Bank of England forecasts see rates peak at 3% next year, however, this does not factor in the outcome of the UK leadership race, with both candidates having quite opposing views on key economic policies. It remains to be seen how the winner will be received by the electorate and in particular business leaders. Against this backdrop of economic and political uncertainty, investors are evaluating their portfolio strategies and individual investment decisions. The overall sentiment, however, appears to remain.  Long dated income and offices with strong ESG criteria stay very much in demand. Retail Parks continue to be sought after by UK institutions and Logistics, whilst yields have tempered, also remains a target sector. Residential let stock, as through the pandemic, continues to attract capital from an increasing investor base and is expected to show low capital volatility going forward.“

Claudia Nacke

Contact

Ms Claudia Nacke
Head of Real Estate Finance UK, London Branch

Phone: +44 20 742 947 00
E-mail: Claudia.Nacke@DeutscheHypo.com

REECOX UK: down 3.9 %

As is the case in almost all of the countries monitored by REECOX, the UK real estate index recorded a consistently negative performance in the second quarter of 2022. These weaknesses were already evident in April (-2.4 %) and in May (-1.1 %). The index stagnated in June (-0.4 %). Overall, the indicator fell 3.9 % quarter on quarter to reach 202.5 points in the second quarter. This places the UK’s real estate index within the mid-range of the Deutsche Hypo REECOX.

All input variables down

In the United Kingdom, stock markets reacted to the current geopolitical and economic situation much as they did in the other countries monitored by REECOX. Britain’s leading stock market index, the FTSE 100, declined by 4.6 % quarter on quarter to finish June at around 7,169.3 points. June (-5.8 %) was responsible for the decline, following positive performance in April (+0.4 %) and May (+0.8 %). The FTSE EPRA/NAREIT UK real estate share index was even more noticeably affected by the impact, falling by 19.1 % quarter on quarter to stand at 1,147.4 points. Quarter on quarter, business sentiment dipped only slightly, by 2.1 % to 91.8 points. This was due primarily to the increase in June (+4.2 %).

Synopsis of Input Variables and Real Estate Economic Situations Q2-2022

Country

Stock Index

Real Estate Economy Index

Economic Indicator

Base Interest Rate

Interest Rate 10-Year Government Bonds

Q1-2204/2205/22Q2-22Delta (%)
Q1-22 / Q2-22
DE
dodo
dodo
dodo
eq
upup
320.6
310.1
308.5
289.8
-9.6
GB
do
dodo
dodo
upup
upup
218.2
205.6
203.4
202.5
-7.2
PL
dodo
do
do
upup
upup
189.5
187.5
185.3
183.1
-3.4
NL
dodo
dodo
dodo
eq
upup
194.6
194.2
192.2
184.8
-5.0
FR
dodo
dodo
do
eq
upup
240.0
234.8
233.6
225.6
-6.0
ES
do
dodo
do
eq
upup
181.6
178.2
181.3
178.4
-1.7