What to expect from "Liberation Day" (we don't know)
Making sense of the latest trends in property and economics from around the globe
4 minutes to read
Welcome to Liberation Day. In a few hours, President Donald Trump will enter the White House Rose Garden to reveal details of his reciprocal tariff regime. Economic policy events of this sort are usually well-telegraphed—with leaks and briefings shaping expectations ahead of time—but this one is different. Among the many remarkable aspects of this moment is the fact that nobody really knows what's going to happen next, including Trump's inner circle.
As of yesterday, Trump's team were "said to be still finalizing the size and scope of the new levies," Bloomberg reports, which is amazing given the likely impacts on the global economy. The prospect of escalation adds further uncertainty - the EU has a “strong plan to retaliate”, European Commission President Ursula von der Leyen told the European Parliament yesterday.
Probably disinflationary
Analysts have published reams of forecasts, but they come with hefty caveats. The consensus view is that tariffs will be bad for growth - materially so - but the knock on effects for inflation are harder to gauge. For the UK, a trade war involving retaliatory tariffs would "probably [be] disinflationary", Bank of England policymaker Megan Greene said with a shrug earlier this week.
For real estate, it's feasible that we see construction materials costs fall as products that might once have been bound for the US are rerouted. The UK exports about £1 billion in construction materials to the US every year, for example, making it the UK's second-largest export market in that sector. In Ireland, where the US accounts for 28% of total exports, that figure rises to £1.5 billion.
More crucial will be how this affects inflation and investor sentiment. As I mentioned a fortnight ago, a broad-based flight from risk will be felt quickly: secondary locations or speculative projects become less attractive and investors will demand higher returns for committing. By the same token, prime assets and development projects will come into focus, as will income producing assets like the living sectors, or defensive sectors like logistics.
Tokyo rising
Annual growth in Knight Frank's Prime Global Rental Index slowed to 2.2% in the final quarter of 2024, marking the slowest rate of growth since the middle of 2021. Growth is now running below the long-run average of 3.7%, having declined steadily from a peak of 11.4% in Q1 2022.
A post-Covid repricing saw prime city rents climb 28% from the end of 2020, with cities like London and New York experiencing growth of well over 50%. A combination of strong wage growth and low new-build supply helped push rents higher. The recent slowing in growth reflects an unwinding of these trends in some markets.
Tokyo takes the lead on our table with annual rental growth at 6% – the city has seen strong demand growth set against a stubbornly slow supply response. Zurich and Melbourne round out the top three. Three markets saw rents fall throughout 2024: Toronto, Auckland, and Singapore. Since early 2021, Auckland has experienced modest growth, with a 9.6% rise, whereas Singapore and Toronto both saw strong growth of 40.1% and 28.9%, respectively. On a quarterly basis, Tokyo, Zurich, Monaco, and Hong Kong all saw strong quarter-on-quarter growth at or above 2%.
While headline rents continue to grow, inflation-adjusted figures tell a different story—real rental growth stalled at 0% in Q4. With inflation still high in many countries, real rents have turned negative in several markets, including Singapore, Auckland, and Toronto. However, with global inflation expected to moderate and demand remaining strong amid persistent supply shortages, this period of negative real growth is likely to be short-lived.
Steady Flow
"The housing market is neither surging nor flat on its back," Knight Frank's Tom Bill wrote on Monday. "It’s steady, which should continue in the absence of further shocks to the system."
Data released since has reinforced that view. Mortgage approvals for house purchases fell by 600 to 65,500 in February, which followed a decrease of 400 in January, the Bank of England reported earlier this week. That's broadly in-line with the 2019, pre-pandemic average.
Meanwhile, there was no change in UK house prices during March, Nationwide reported yesterday. That leaves the annual growth rate at 3.9%.
“House prices were supported by the stamp duty deadline in the first quarter of the year but we expect a dip in activity as demand effectively resets from April," Tom told the Standard. “Buyers coming back into the market with a relevelled playing field will find that supply is strong, which should keep downwards pressure on prices. Activity should recover by the summer but borrowing costs could be held higher for longer by erratic US trade policy and the inflationary impact of measures like the employer national insurance changes.”
In other news...
UK cladding fund fix would enable 90,000 affordable homes, councils say (FT).