PROPERTY OUTLOOK FOR 2022 with John Loos
“Normalising the correction”
2022 is a year in which I expect the longer run property market correction to “normalise. By “normalise”, I am talking about a situation where all out decline in average capital values across the commercial property sector ends, and we revert to a situation of very low growth in capital values, but insufficient to keep up with general inflation in the economy. This would translate into ongoing correction in capital values in “real” terms, the way in which property markets often slowly correct over long periods.” I believe that, after a period of significant decline in average commercial property valuations, to the tune of –9.5% from the 2nd half of 2018 to the 1st half of 2021, according to MSCI half-yearly data recently released, we will likely move back into low positive growth territory in the All Property Average Capital Value in 2022. In the 1st half 2021 data we were already seeing a 2nd consecutive semester of a diminishing
rate of average property value decline after significant declines in 2020. How far are we into the multi-year correction in real property values?
But when did the broad multi-year property market value correction actually start, and how far are we into it? I put 2016 as the year in which the correction reallystarted, in a lagged response to broadly stagnating economic growth since around 2012. While actual (nominal) valuations weren’t yet declining significantly until much later, 9 out of 11 semesters from 2016 onward have shown real (GDP inflation-adjusted) declines in average values when compared with the preceding semester. So while actual valuations have dropped far less, in real terms (the proper way to assess a correction) the cumulative decline in the MSCI All Property Average Capital Value has been a significant -29% from the 1st half of 2016 to the 1st half of 2021.
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