Income will account for more than 60% of total returns over the next five years as the rate of capital growth dips across the industry, according to Savills’ latest cross-sector forecasts.
Capital growth has accounted for about 55% of total returns over the past 10 years, but that is expected to dip to just 40% between 2018 and 2022.
Urban logistics, which has the highest overall growth prospects among 19 sectors, was one of only four sectors in Savills’ forecast that it expects will deliver higher capital growth than income return.
Savills said that a combination of risk aversion and an undersupply of traditional prime stock mean investors would continue to target alternative sectors.
Mark Ridley, chief executive of Savills UK and Europe, said: “Domestic investors are likely to remain more cautious due to home bias, and perhaps a slight preoccupation with UK political issues not shared by their international counterparts, but although sentiment and activity may be subdued it won’t stop.
“The biggest beneficiary of the shortage of prime mainstream stock will be the UK’s plethora of income-producing asset classes, categorised previously as alternatives but which will now be firmly in the mainstream. Whether a pub, or a cinema, warehouse, student housing, or the growing number of build-to-rent units being delivered, the attraction to investors will be the bond-type characteristics of the asset.”
This year has seen a surge of long-income vehicle launches, including those from a number of listed companies such as Impact Healthcare REIT, Warehouse REIT and Triple Point Social Housing REIT.
Whether the target is social housing or healthcare, investors have bet on sectors that have potential for reliable, long-term income.
However, some, like Secure Income REIT’s Martin Moore, have expressed concerns about the sheer number of such vehicles and the availability of good stock to satisfy that demand.
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