Income set to account for 60%+ of UK property returns to 2022

05 December 2017

Secure long-life income streams are going to become ever more highly prized by real estate investors over the next five years, says Savills, as the international real estate advisor forecasts that income returns will account for just over 60% of total projected returns from UK property assets for the period to 2022, compared to 45% over the last 10 years.

Savills expects capital growth to account for 40% of total returns across all UK property to 2022, compared to a 55% share over the past 10 years. This is reflected by the real estate advisor’s muted capital-growth forecasts at this stage in the cycle, as investors become more cautious on rental growth prospects going forward.

Savills unveiled its predictions for UK the commercial, residential and rural real estate sectors at its annual cross sector briefing this morning (Tuesday 5 December), including a league table forecasting the average annualised returns for various property sectors between 2018 and 2022 - see here

Urban logistics sit at the top of the Savills league table for average annualised returns between 2018 and 2022 as the sector looks set to deliver both the highest income yield and strongest capital growth prospects. According to Savills, not only is the secure income from the sector incredibly popular at the moment, but pressure on land, particularly inside London from other uses, will maintain undersupply and deliver extra rental growth.

The best performers in the residential sector are likely to be multifamily assets in regional cities. These offer an opportunity to capture higher yields with good prospects for underlying capital growth while corresponding higher-income yields should underpin performance in this part of the housing market cycle. In the rural property market, uncertainty from the decision to leave the EU and around future agricultural policy is impacting sentiment, but nonetheless Savills expect units of scale which have options to diversify income away from agricultural production to remain sought-after.

Mark Ridley, Chief Executive Officer, Savills UK and Europe, says:

“The overall trend for UK real estate in 2018 is the continued transformation of risk aversion into resilient demand for prime assets. Domestic investors are likely to remain more cautious due to home bias, and perhaps a slight over-preoccupation with UK political issues not shared by their international counterparts, but although sentiment and activity may be subdued it won’t stop. UK property remains a safe-haven for capital preservation, and demand for prime, secure investments will be as keen as ever.

“The biggest beneficiary of the shortage of prime mainstream stock will be the UK’s plethora of income-producing assets classes, previously categorised as alternatives but will now firmly be in the mainstream. Whether a pub or cinema, warehouse, student housing, or the growing number of build to rent units being delivered, the attraction to investors will be the bond-type characteristics of the asset.”

Savills full sector-by-sector investment picks and top trends for 2018 and beyond in each sector are available here

 
 

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Mat Oakley

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Lucian Cook

Lucian Cook

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Savills Margaret Street

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