Higher interest rates depress UK commercial property, survey finds

By David Milliken

LONDON (Reuters) – Two thirds of property surveyors think Britain’s commercial real estate market is in a downturn, as higher Bank of England interest rates have brought the toughest credit conditions since at least 2014, a survey showed on Thursday.

The Royal Institution of Chartered Surveyors (RICS) said 68% of members judged the overall market was in a downturn, even though some sectors such as industrial property, student housing and prime office space were robust.

The BoE raised interest rates to 5% last month to tackle the highest inflation in any major advanced economy, and economists polled by Reuters this week expect a further quarter point increase next week and a peak of 5.75% this year.

“This has, almost inevitably, impacted sentiment within the commercial property market, as higher borrowing costs weigh on investor demand and place renewed pressure on capital values,” RICS economist Tarrant Parsons (NYSE:) said.

Financing conditions were judged to be the toughest since RICS first asked about them in late 2014.

BoE rates are the highest since 2008, and policymakers are weighing up how much further they will need to rise to return inflation to its 2% target from 7.9% in June.

The impact on many households has been limited or delayed, as fewer people have mortgages than during the last rate tightening cycle before the 2008 financial crisis, and a smaller share of mortgages have floating interest rates.

However, business surveys have shown higher rates have had a marked impact on house-building and some other business sectors.

RICS said demand for office and retail space fell over the last three months, especially for older, less energy-efficient buildings, while industrial demand rose.

Two BoE policymakers opposed the BoE’s last rate rise in June, saying the central bank had probably already raised rates higher than needed to return inflation to target.

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