Despite the potential uncertainties surrounding an election year, residential buy-to-let in the North West, London industrial property and retail warehouses are set to be the UK property market’s top performers for 2024, according to Savills.
In a new report, the advisor notes that a few segments are set to experience annualised investment returns of between 8.5% and 9.2% between 2024-2028, with eight types of asset class in total anticipated of seeing returns in excess of 8%.
Savills annual cross-sector forecasts suggest a stronger outlook and opportunity for UK property investment in 2024 as interest rates steady. But returns will continue to be driven by income potential instead of capital growth.
The report opines that 2024 will be an opportunity to buy at the very bottom of the cycle for commercial investors, with retail, industrial and office space looking comparatively cheap.
Savills says that opportunistic investors will be attracted to parts of the retail market by rebased rents and rates, and higher yields, as well as the medium-term capital growth upside that could come from change of use.
Occupier demand for prime high-quality and highly rated warehouses, meanwhile, is also set to keep prices rising in 2024, especially in London, according to the international real estate advisor.
After an uneven year for the UK office market, cooling inflation, falling borrowing costs, and good rental growth prospects will bring some development schemes back into viability territory in 2024, as investors look to capitalise on the undersupply of prime and green office space.
In the housing space, struggles in the private rented sector are also expected to spur institutional landlords to consider both built to rent and purpose-build student accommodation.
But with inflation heading back towards the Bank of England target of 2.0% and more stability in the mortgage markets, Savills expects to see the primary sources of financial disturbance ease back over the course of next year.
Despite tougher conditions for landlords, with Savills forecasting rents to grow by a further 18.1% by 2028 there is still significant opportunity for those less reliant on debt, particularly for those with a portfolio furthest from London, with Savills forecasting 9.2% returns for the North West.
The report also suggests opportunities in rural UK farmland, with prime arable land with the main purpose of food production likely to continue to appeal, heightened through the impact of global shocks such as conflict or extreme weather.
Richard Merryweather, Savills joint head of UK investment, said: ‘The factors that drove falls in UK property values and transaction levels over the last two years are expected to improve in 2024.
‘There will be significant opportunity – especially in the commercial and residential spaces – for investors to buy at the bottom of the market, with a focus on opportunities where capital values have either over-corrected, or where rental growth prospects might be accelerating.
‘The UK is one of 40 counties that is expected to have an election in 2024 which often causes investor uncertainty. However, our analysis suggests that although transactional activity is generally lower than normal in the three months prior to the election date, it recovers over the following six months.’
