At BMO REP, we predict single digit all-property total returns after this year, underpinned by the income return.
The economic and political outlook continues to be dominated by Brexit as the second deadline for departure has passed without agreement. The political situation is unprecedented in modern times and the forthcoming general election adds a further element of uncertainty to the outlook.
Consensus forecasts indicate that GDP growth would be lower in 2020 than 2019, and the 2020 estimates numbers are being revised down. Forecasters expect a recession to be avoided for the full year and for economic growth to improve thereafter. However, Brexit is expected to result in a long-term reduction in economic growth from pre-referendum estimates.
BMO REP forecasts are based broadly on the consensus economic outlook. They assume that some sort of deal is concluded within the next few months but acknowledge the considerable uncertainty surrounding forecasting in the current environment.
We have downgraded the all-property total return estimate for 2019 further to -0.9%. The prediction for 2020 has also been revised slightly lower. Both estimates are below the latest Investment Property Forum (IPF) consensus forecasts. However, we now anticipate a stronger recovery, helped by a regime of low interest rates. For 2021-23 inclusive, we are more upbeat than the IPF Consensus.
This is conditional on some sort of Brexit deal being secured. We would expect further uncertainty or no deal to be negative for property, as would a Labour Government.
With economic growth and inflation expected to be muted, we anticipate a continued focus towards protecting and enhancing long-term, secure income streams. We believe there could be some activity in the more opportunistic space if open-ended funds and shopping centre owners, in particular, are forced to sell stock.