The commercial property market in the UK is on track for a positive year this year but retail continues to face challenges, according to the 2H 18 Commercial Real Estate Outlook by UBS Asset Management.

The report states that much of the positive momentum from 2017 continued into the first half of 2018, with the annual total return at the end of Q2 2018 standing at 9.4%, only a slight slowdown from the 10.3% achieved at the same stage of the year in 2017.

However, UBS states: “Storm clouds are, however, gathering over the troubled UK retail sector, and we are now seeing the first signs of a pricing and rental correction, which is forecast to accelerate into the second half of the year. And while the industrial sector looks set for another stellar year, we are also seeing the first indications that the pace of growth on both the occupier and investment side is starting to ease back slightly as we move into the second half of the year.”

Economic environment and expected occupier demand
Following the weak output of just 0.2% in the weather-affected first quarter, economic activity rebounded in Q2 to 0.4% which was back in line with the quarterly growth rate expected from the start of the year.

Regarding the recent base rate rise, UBS said: “With inflation set to fall back below the 2% target in 2019/20, and wage growth still stuck at around the 2.5% mark despite the lowest unemployment rate since the 1970s, we expect the Bank of England to lean on the dovish side, with just one further hike forecast for next year.”