.jpg)
Steady strides, not leaps, as UK property returns find their rhythm.
Overall, our outlook for the next five years is slightly more positive than it was twelve months ago, with the average total return forecast rising from 7.4% per annum to 7.8% per annum. The importance of income in delivering the return has risen across the board, primarily due to the expectation that the pace of interest rate tightening will slow and that the transmission of base rate cuts to the bond market will be slower than we were expecting last year.
The North of the UK will continue to deliver a better total return for residential investors than the South, something that is typical in this stage of the housing cycle. In the commercial property sectors, it is those that deliver the highest income returns that will see the best total returns. We expect to see more institutional interest in shopping centres in particular for their strong income return and limited risk of being replaced by better schemes if they are already dominant.
All of the rural sectors are forecast to see slightly stronger capital value growth over the next five years than we were forecasting last year, as the economic recovery gathers pace from 2027.
Generally, we are predicting that development viability will remain challenging, and this will lead to shortages of prime assets in most locations. This will ensure that rental growth will generally be sustained at its current higher than normal levels.
Overall, we are forecasting a slightly more muted recovery over the next five years than we have seen from previous downturns, but still a steady improvement in both volumes and values. The total returns on offer will be broadly in line with the long-run average, and this should ensure that property remains a key part of many investors’ portfolios.