Scottish commercial property is likely to see more “investor appetite” during 2018.
That was the new year forecast for north of the border from Nick Penny after property giant Savills released its latest report on trends for the commercial, residential and rural sectors.
Mr Penny, head of Scotland at Savills, said there is going to be “less potential” UK-wide for property value growth next year.
But there is “capacity” for some price rises away from prime markets, he said, adding: “Scotland in particular is likely to see a further increase in investor appetite, both domestic and overseas, across all asset classes … as it continues to look comparatively good value.”
In its UK-wide report, Savills said secure, long-life income streams were going to become “ever more highly prized” by commercial property investors over the next five years.
It predicted income returns would account for more than 60% of total projected returns from UK property assets for the period to 2022, against 45% over the past 10 years.
Savills expects capital growth to account for only 40% of total returns across all UK property to 2022, compared to a 55% share over the past 10 years.
Urban logistics is at the top of the firm’s league table for average annualised returns between 2018 and 2022.
Demand for new distribution hubs as online retailers seek to reach their customers faster is driving growth in logistics property markets across the UK.
Savills said it was the sector promising both the highest income yield and strongest capital growth prospects.
Not only is the secure income incredibly popular but pressure on land will maintain under-supply and deliver extra rental growth, the firm added.
Savills chief executive Mark Ridley said: “The overall trend for UK real estate in 2018 is the continued transformation of risk aversion into resilient demand for prime assets.
“Domestic investors are likely to remain more cautious due to home bias, and perhaps a slight over-preoccupation with UK political issues not shared by their international counterparts.
“Although sentiment and activity may be subdued, it won’t stop. UK property remains a safe haven for capital preservation, and demand for prime, secure investments will be as keen as ever. The biggest beneficiary of the shortage of prime mainstream stock will be the UK’s plethora of income-producing assets classes, previously categorised as alternatives but now firmly in the mainstream.
“Whether a pub or 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.”
According to Savills, the best performers in the residential sector are likely to be in regional cities.