Despite a better-than-expected performance by the UK commercial real estate this year, most major property consultants and fund manager researchers do not believe the market will remain strong beyond 2018.

The Investment Property Forum’s (IPF) final UK Consensus Forecast report of 2017, which surveyed 22 researchers between the end of August and middle of November, found that expectations across all three performance measures – capital values, rental growth and total returns – have increased.

The research showed that the average forecast for rental growth for all sectors was 1.6%, up from 0.9% in August. Projections for industrial property have increased over 100bps from three months ago to 0.8%, while projections for offices have risen 62bps.

The research shows lower expectations for rental growth for all property types next year, compared with 2017. On a five-year average, performance is expected to “remain relatively static”, the report showed.

“Looking to performance prospects across the five years of the survey, averages are little changed over the previous quarter,” IPF said.

Responding to the report, Capital Economics said that despite being “persistently surprised to the upside during the course of 2017,” most forecasters do not envisage that this year’s better-than-expected performance will be extended into 2018.

In a note by chief property economic Ed Stansfield, Capital Economics said: “We agree that returns are likely to moderate. But we suspect that the consensus may still be underestimating the economy’s and the market’s resilience.” 

Capital Economics said commercial property forecasters have consistently underestimated the market’s momentum in 2017, “being too quick to price in a turning point for property yields and failing to see that occupier markets would not be significantly affected by the uncertainty generated by the Brexit process”.

Capital Economics adds that, over the course of this year, “the Consensus has quadrupled its forecast for rental value growth and reversed its forecasts for a marginal rise in yields”.

The research group expects both investment and occupier markets to fare a little better than the IPF Consensus in 2018. “But there is a broad agreement about the likely direction of travel,” it said.

“The bottom line, however, is that neither we nor the consensus see scope for yields to move lower regardless of how the economy and occupier markets fare”

“However, if our forecast for the economy to grow by 2% or more is right, there may still be some upside risks around the 2018 returns outlook.”