Savills predicts high returns for UK property investors

Savills predicts high returns for UK property investors

0:01 AM, 4th January 2024, About 6 months ago 1

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The UK’s property market will offer attractive returns for investors in the next five years, with some asset classes and regions outperforming others, Savills reveals.

The property consultancy has identified eight types of property that will deliver annualised returns above 8% between 2024 and 2028.

These include residential buy to let properties in the North West, industrial property in London and retail warehouses, which are expected to be the top performers with returns ranging from 8.5% to 9.2%.

Savills says that despite the challenging conditions for landlords, such as higher taxes and regulations, there is still a significant opportunity for those who are less dependent on debt.

That is the case in the regions furthest from London with the North West, for example, projected to see 9.2% returns for residential BTL as the UK’s rents are forecast to grow by 18.1% by 2028.

‘Factors that drove falls in UK property values’

Savills’ joint head of UK investment, Richard Merryweather, 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.”

He added: “The UK is one of 40 countries 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.”

Private rented sector (PRS) will face more competition

The firm also expects that the private rented sector (PRS) will face more competition from institutional landlords investing in Built to Rent (BTR) and purpose-built student accommodation (PBSA).

These sectors are expected to play an important role in meeting the growing demand for rented housing, especially among young and elderly people.

Indeed, its residential investment pick is retirement homes for renting with the emergence of new players and models in the retirement housing sector.

They will be helped by a structural imbalance in demand and supply.

Property investment market will have a stronger outlook

Savills’ annual cross-sector forecasts suggest that the UK property investment market will have a stronger outlook and opportunity in 2024, as interest rates stabilise.

However, the firm warns that returns will continue to be driven by income potential rather than capital growth, as the cost of debt will remain high for longer.

Savills also predicts that house prices will return to growth by 2025, as the cost of mortgage debt gradually declines over the next five years.

This will increase the affordability and activity levels of home buyers, who have been subdued by the uncertainty and volatility of the market.


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Comments

NewYorkie

11:06 AM, 4th January 2024, About 6 months ago

'... residential investment pick is retirement homes for renting with the emergence of new players and models in the retirement housing sector'

This is something which must happen, to break the current immoral retirement home leasehold scam. Unfortunately, it will only make matters worse for those whose loved ones have passed away, leaving behind the burden of a retirement home which they cannot sell, and is racking up huge service costs every day.

I will never again invest in directly owned BTL, but I agree there is a growing rental demand which cannot be met. Therefore, I have just taken a punt on a BTR REIT, which aims for a 5.5% RoI. The Trust focuses on new family homes with EPCs mostly under C.

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