Interest rate rise not expected to have a major impact on real estate, says JLL's Andrew Burrell

Interest rate rise not expected to have a major impact on real estate, says JLL's Andrew Burrell

August 02, 2018

As was widely expected, the Bank of England (BOE) raised UK short-term interest rates by 25 basis points to 0.75 percent. The unanimous decision was unsurprising and the path of normalisation (see below) for interest rates remains predictable investors in the UK's commercial and residential sectors can at least plan ahead.

The rise has been largely priced in and is not expected to have major impact on real estate markets, says Andrew Burrell, JLL EMEA Head of Forecasting. Given the large spread by historic standards between prime commercial property yields and long term interest rates, there's not likely to be any upward pressure on property yields in the short term.

Normalisation

Burrell says the latest decision is in line with a trend of normalisation - the process of pushing rates up from current exceptional lows to normal levels, currently seen as around 3 percent and much lower than the old normal of 5 to 6 percent.

Although the economy remains fragile as Brexit looms, the Bank has made no secret of its desire to follow the Federal Reserve in this normalisation of rates.