MSCI: positive capital growth for UK commercial real estate

Commercial real estate in the UK recorded the first positive capital growth in two years during the second quarter of 2024, according to MSCI’s UK Quarterly Property Index.

“The index’s all-property capital growth was marginally positive at 0.1% as 33% of properties covered by the index recorded positive growth during the quarter,” said Niel Harmse, vice president, MSCI Research. “This share is up from 17% just two quarters prior and well off the 6% recorded in Q4 2022, when quarterly capital growth slumped by 12.8%.”

Valuations increased by 0.1% in March through June, compared with the previous quarter. Combined with +1.2% income growth (i.e. rental income), UK commercial real estate investment generated a total return of +1.3% quarter on quarter.

Total return, made up of the capital return plus the income return was 0.0% in Q2 on a year-on-yearbasis.

The residential and industrial sectors did well in the UK, offsetting the continued weakness in the office sector in Q2, according to MSCI.

“The largest proportion of appreciating assets came from the residential and industrial sectors, at 49% and 40% of their respective underlying assets,” said Harmse. “Offices were still the main drag on the market and the only property type where quarterly returns remained in the red.”

MSCI’s UK Quarterly Property Index measures the performance of 6,775 properties worth a total of £125 billion at the end of June.