Total property returns are set to drop into single digits next year as capital growth tails off, according to Savills’ outlook for 2016.
The agent has forecast that returns will fall to 7.5% – still outperforming other asset classes, but well down on the capital growth of the past two years.
Savills’ report said that it expected investors to focus on income growth opportunities with total investment volumes likely to dip slightly to around £60bn.
The agent’s top-pick real estate opportunities for 2016 include:
• Good quality office refurbishments in the core of the big seven regional cities
• London “future core” development locations that offer cheaper rents
• Emerging luxury retail submarkets, which will outperform core streets
• Multi-let industrial estates in London and the South where new permitted development rights could enable conversion to residential
• Ealing, Acton, Greenwich, Lewisham and Waltham Forest, which will buck the slowdown in London residential price growth as they attract more affluent buyer groups
• Attractive commuter towns, which offer good medium-term residential price growth
• Hotspots in regional cities, especially good secondhand stock in centrally located areas
• Rural estates, which are attractive to high net worth buyers looking for diverse revenue streams to offset commodity price volatility
• Commercial farms, particularly in Scotland
