This was a year of two halves for the property market. In January, real estate investors were brimming with confidence as a post-Covid economic recovery looked as though it would see workers return to their desks, consumers return to the shops and money continue to chase warehouse assets. Meanwhile, the imbalance between housing supply and housing demand appeared as if it might well offset the impact of slightly tighter monetary policy.
Then, Russia invaded Ukraine and the resulting economic fallout hit the property market the way Mike from Ernest Hemingway’s novel The Sun Also Rises went bankrupt: gradually and then suddenly. The value of the real estate investment trusts (Reits) and housebuilders began to slide as higher inflation took hold and jeopardised what had already been quite a fragile recovery. An Amazon profit warning began to deflate the warehouse bubble and by May Savills (SVS) was predicting a 1 per cent fall in house prices for 2023.
Next came the sudden part. On 23 September, former prime minister and former chancellor Liz Truss and Kwasi Kwarteng’s now infamous “mini” Budget shocked the markets with its promises of billions in unfunded tax cuts. The cost of government debt rocketed as a result, which meant the yields on such bonds became more attractive relative to those on property. This hit warehouse and office assets hardest, but soaring interest rates meant that all real estate was impacted.
According to analysts MSCI, October was the worst month on record for returns in UK real estate. The -6.5 per cent return from its index was worse than the -4.75 per cent posted during the depths of the 2008 financial crisis and -2 per cent both immediately after the Brexit referendum result and the opening month of the pandemic. Nor did the residential property market escape. By October, Savills was