Many real estate commentators are relaxed about the Bank of England’s decision to raise the U.K. interest rate to 0.75 percent.
The increase is only the second to have been implemented by the Bank since the global financial crisis.
The Bank’s Monetary Policy Committee (MPC) voted unanimously to increase the Bank Rate by 0.25 percentage points on Aug. 1 after saying that the U.K. labor market had continued to tighten with GDP expected to grow by around 1.75 percent on average over the next few months.
Sukhdeep Dhillon, a senior economist at BNP Paribas Real Estate, says the move was widely anticipated and that it was unlikely to have much of an impact on commercial real estate pricing.
“Commercial property yields are not strongly correlated to interest rates and as a result the sector will absorb this small rise in interest rates,” say Dhillon.
Ludo Mackenzie, head of commercial property at Octopus Property believes that the decision is unsurprising.
“Whilst the residential and commercial property sectors, particularly in London and the South East, continue to face challenges, stakeholders should be in a robust enough position to stomach a 0.25 percent increase and small, well signposted steps, should be welcomed,” he says. “Yes, there will be winners and losers, but over the longer term it is to be expected that rates should normalize; something that is in the interest of a properly functioning economy.”
Meanwhile, Richard Gwilliam, head of property research at M&G Real Estate, explains that evidence from previous market cycles and from recent base rate rises in the United States show that property can perform well in rising interest rate environments, with property yield expansion far from inevitable.
“There is a healthy risk premium currently priced into U.K. property which can help to absorb higher interest rates, while increased global capital flows mean U.K. interest rates are arguably a less significant influence on property investment than previously,” adds Gwilliam.
