Income set to account for more than 60% of UK property


Savills releases trend forecasts for the commercial, residential and rural sectors

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.

Capital growth is expected to account for 40% of total returns across all UK property by 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.

Predictions for commercial, residential and rural real estate agents sectors were unveiled recently at Savills’ annual cross-sector briefing, with urban logistics sitting at the top of the Savills league table for average annualised returns between 2018 and 2022. This is predicted as the sector is set to deliver the highest income yield and strongest capital growth prospects. The secure income from this sector is hugely popular at the moment, but, according to Savills, 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 multi-family assets – such as apartments and student housing – 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.”

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