The surprising political events of 2016 will lead to greater ‘caution and risk aversion’ among property investors in 2017, making secure income streams more highly prized among core investors globally, according to Savills.
The property advisor believes that this trend will benefit the UK market, especially in London, where high levels of transparency and stable legal structures make property a safe haven.
The overall story for UK property is one of slower growth.
Average UK house prices are expected to remain stagnant in 2017, before increasing by 2% in 2018 and 5.5% in 2019 to a total of 13% by the of 2021. A supply-demand imbalance means rents will outperform house price growth, rising 19% over the same period.
In the commercial market, average total returns on UK property investments are likely to be approximately 5.6% per annum during 2017-2021, with a 1.6% 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 GB forestry and 5.5% average five year capital growth is forecast for GB farmland.
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, says Savills.
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.
Mark Ridley, chief executive officer, Savills UK and Europe, said: "’Expect the unexpected’ is now the normality, not the exception, on the world stage. Despite this, 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.
"Nationally, 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 EU subsidies.
"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."