UK property markets are set to see slower growth in 2017 but will still be regarded as a safe investment despite Brexit and political uncertainty as a whole in Europe, according to the latest forecast report.
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., says the predictions from real estate firm Savills.
The firm also pointed out that the current supply and demand imbalance is set to continue and it means that residential rents will outperform house price growth, rising 19% over the same period.
Mainstream house price growth is likely to rise 13% by 2021, with the East of England set to be the top performer at 19%, with the North and Scotland averaging just 9%.
The report points out that the European Union 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.
Savills also predicts that sales 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.
It adds that 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.
In the commercial market, average total returns on UK property investments are likely to be approximately 5.6% per annum from 2017 to 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 British forestry and 5.5% average five year capital growth is forecast for British farmland.
The report explains that 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 and 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. Savills says that 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 of Savills UK and Europe, pointed out that despite political uncertainty in Europe and indeed around the globe, 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.
‘In the UK 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 European Union subsidies,’ he explained.
‘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,’ he added.