What does 2017 hold for the UK real estate investment market?

What does 2017 hold for the UK real estate investment market?

According to the latest report from Savills, the unexpected political events of 2016 will lead to a rise in caution and risk aversion among real estate investors in 2017, making secure income streams more highly prized among core investors globally.

This is expected to benefit the UK market, where high levels of transparency and stable legal structures make real estate a safety play.

The international real estate advisor unveiled its predictions for UK real estate at its annual cross-sector briefing, taking a detailed look at the commercial, residential and agricultural markets.

The overall story for UK real estate is one of slower growth.  Average UK house prices are expected to remain stagnant in 2017, before rising by 2% in 2018 and 5.5% in 2019 to a total of 13% by the of 2021. A supply / demand imbalance means rents will outperform house price growth,  rising 19% over the same period.

In the commercial market, average total returns on UK property investments are likely to be approximately 5.6% per annum during 2017-2021, with a 0.4% five year capital growth forecast for office values and a 4.4% growth forecast for office income returns. Savills also forecasts 32% average five year capital growth for GB forestry and 5.5% average five year capital growth is forecast for GB farmland.

Commercial property assets with long lease structures and strong rental covenants will continue to attract attention, while institutional investor appetite for large residential portfolios is expected to continue to grow. The relatively high yields and strong income flows from commercial property will continue to attract strong demand, says Savills.  Greater risk will mean a strong focus on sectors where the fundamentals of supply and demand are most insulated such as retirement housing, logistics and energy.


For opportunistic investors the continued ultra low interest rate environment will limit the extent to which distressed assets hit the market. These investors will instead look towards development markets, particularly mixed use opportunities linked to infrastructure improvements. The changed attitude to risk is likely to mean a less crowded market place for the value-add investor, particularly if lender caution results in tighter borrowing criteria in the development sector.

Mark Ridley, Chief Executive Officer, Savills UK and Europe, says: “'Expect the unexpected' is now the normality, not the exception, on the world stage. Despite this, property remains a fundamentally safe asset class, giving strong income returns and, in many cases, is a refuge for capital preservation in the longer term, its appeal remaining resolute.

Nationally, the markets continue to appear robust in all sectors, although there remains some hesitation on what Brexit will mean in the financial markets, around biomed and also in an agricultural market place without EU subsidies. The sterling devaluation has made UK property very attractive for international investors pegged to the US Dollar or Euro, with 2017 activity in Central London likely to be dominated by Asian investors, with American and Pan-European investors also strong nationally.”

Residential predictions for 2017 and beyond:

 Average house price growth will be low over the next two years, but an extension of the low interest rate environment will prevent a price correction. Mainstream house price growth is likely to rise 13% by 2021, with East of England the top performer at 19%, the North and Scotland averaging just 9%

The EU referendum vote has compounded the stamp duty effect on prime residential property, signalling two flat years before a return to trend growth in 2019.  Prime markets are likely to outperform the mainstream over the next five years to the end of 2021

Transaction volumes will fall 16% over the next two years, recovering to 2016 levels by 2021, but individual buyer groups will be impacted differently. Lower transactions are expected to continue driving demand into the private rented sector from frustrated would-be home owners

Opportunities for private investors lie in restoration projects in the commuter belt where value can be added to take advantage of the price gap between London and elsewhere, and buy to let properties in university towns where student lets offer good yields and where values have been slow to recover

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Comments

  1. brandonlee10brandonlee1024 July 2017 14:18:09

    The financial ramifications of the triggering of Article 50, the starting gun for Britain's departure from the EU, are far from clear. Buyers will be most cautious in London, given that buying a home in the capital is a bigger financial commitment than elsewhere in the country.

    Reply to this comment

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Kelvin Lloyd
Kelvin Lloyd 09 Oct 2017

IT is up, to the Planners. If they will only give permission for bungalows on certain (suitable) sites, they will be built.

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maggie swift
maggie swift 09 Oct 2017

It's just the beginning of the shocking rise.

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maggie swift
maggie swift 09 Oct 2017

I have recently read that the bungalows can provide social housing for elderly residents in London.

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zoe glover
zoe glover 05 Oct 2017

Update! Worst company I have ever dealt with. Undervalued a Cambridge property by over 100k, wont take on any evidence of valuation including a RICS valuation done 3 years ago for the very same value...

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Paul Edwards
Paul Edwards 27 Sep 2017

Its nonsense articles such as this that make it harder to get clients to realise just how difficult the market is out there. When you see Rightmove and there are more 'price reduced' then 'new' most days...

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Tom Allen
Tom Allen 20 Sep 2017

Absolutely agree with you!

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RyanGeo
RyanGeo 18 Sep 2017

A sharp correction would be a less dramatic expression to use. That is already underway in certain sectors in Reading where I practice as Chartered Surveyor

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sean benton
sean benton 01 Sep 2017

Identity theft is a thread for any profession. So,people should stay alarmed. I once take help from a letting agent and came to know that letting agents are taking every precaution to prevent fraudulent...

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Mark N.
Mark N. 30 Aug 2017

We have seen a surge in instructions over August and that should continue into September too.

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Chris
Chris 30 Aug 2017

Unfortunately, all the legislation bears its force on Landlords and ignores, naively, the effect of Rogue Tenants on the ability of landlords to keep houses in repair and offer properties for rent at reasonable...

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Christian Donovan
Christian Donovan 18 Aug 2017

The write-down on house values, combined with the fall in the GBP saddled the fund?s property portfolio with a 1.4% loss in the second quarter. The shocking amount of $240 million.

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Samantha Goodman
Samantha Goodman 11 Aug 2017

Interesting point of view.

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