World Construction Today – According to experts at Goldman Sachs Group Inc., the government’s mini-budget last month caused a sharp increase in the cost of borrowing for landlords, which might cause a 20% decline in UK property values.
According to Goldman analysts, including Tom Musson, in a note this week, the rise in UK treasury yields since Chancellor Kwasi Kwarteng’s statement will have an effect on real estate returns, which normally offer a premium above government debt. Publicly traded landlords covered by the bank could see the value of their holdings shrink by as much as 12% between June of this year and December 2024, the report stated, even though the bank expects property values in Britain to fall by as much as a fifth.
The Decade-Long Party in European Real Estate is Over.
Commercial real estate appeared to be in for a potentially harsh re-pricing as a decade of cheap or negative rates of interest drew to an end, even before the most recent spike in UK bond yields. Sharp declines have been seen in the shares and bonds of real estate investment trusts, and the effects are now beginning to show in transactions. For example, Land Securities Group Plc sold the new London headquarters of Deutsche Bank AG in September for a price that was almost 15% less than the opening offers that were made just before Russia’s invasion of Ukraine.
If interest rates stay where they are, according to Goldman, the publicly listed UK landlords it covers could experience a 75% increase in borrowing costs over the next five years, to more than £700 million ($775 million). In addition, outside of highly sought-after industries like warehouses, a worsening economic outlook will limit landlords’ capacity to push for inflation in the form of higher rents.
Given the deteriorating macroeconomic picture for the UK, Musson stated, they foresee some fresh stress on retail landlords over the next 12 months, and also do not think energy price rises flow down unexperimented, especially for lower margin tenants.