The outlook for returns from London and regional offices makes them some of next year’s likeliest top performers, according to the team at Savills.
The agency has raised its outlook for the average total return for UK real estate to 7.4%, compared with 6.8% for 2024. Although income will still account for the bulk of property performance, the team expects a recovery in capital value growth for most sectors will boost returns.
The firm’s top performer for annual returns remains residential buy-to-let in the North West, at close to 11%, but central London and regional offices have moved up its table, both to more than 10%. Savills said positivity in those latter sectors is being driven by restrained supply of prime space and the expectation of yield hardening.
Retail, leisure and agricultural businesses are likely to feel the biggest impacts from recent Budget policy announcements, the agency said, and in the residential sector, the treatment of “non-doms” will affect the prime central London residential market.
In the commercial market, Savills’ top investment picks are undersupplied logistics markets, offices in core locations and prime retail streets. In residential, its favoured investments are family housing in “educational super towns”, multifamily in core cities and development sites in areas of higher housing targets.
James Gulliford, Savills’ joint head of UK investment, said: “The 40-year high of inflation has passed, and most forecasters are predicting around 100 basis points of base rate cuts from now until the end of 2025. Both of these are good news for land and property occupiers and landlords, and should bring increased levels of transactional activity in many markets.
“However, the new government stuck its policy flag in the ground with the Budget, and while higher taxes to support public spending were never going to be a surprise, the details of this have been enough to cool some of our forward views a little. Overall, however, our outlook for 2025 and beyond is more positive than it was 12 months ago with more income and capital value growth on offer in most sectors.”
Image from Savills
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