South: Income set to account for 60% of UK property returns, says Savills

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 adviser forecasts that income returns will account for just over 60% of total projected returns from UK property assets for the period to 2022, compared with 45% over the past 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, including a league table forecasting the average annualised returns for various property sectors between 2018 – 2022.

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 multi-family 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.

Martin Hastelow, head of Savills Southampton, commented: “Over the coming year we expect properties with long-life income streams to remain popular as demand for prime assets will continue to put pressure on available stock. In Southampton investment has been constrained by a lack of available assets in the market, however as the shortage of prime stock is felt across the UK, investors will increasingly look to be more opportunistic and regional markets will benefit.”