Still sailing with the wind? The outlook for UK real estate capital markets in 2018

Strong tailwinds have supported UK capital markets in 2017, but will 2018 prove a year of headwinds? We explore the key issues in our UK capital markets house view, but here are five takeaways to set the scene:
Written By:
William Matthews, Knight Frank
1 minute to read
Categories: Residential Sales

Time to act

Investors will increasingly favour prime, but the window of opportunity for selective selling of non-prime assets is open.

Income is king

Retail is the new industrial: Income will become a greater focus for investors, but this no longer means a default to industrial property.

‘New’ capital sources to support transactions

A variety of capital sources including listed equity, platform acquisitions and debt are adding to the mix of investor demand and underpinning values.

Will 2018 prove a year of headwinds for UK capital markets? 

Capital growth still to come

Some sectors will see further yield compression and/or rental growth.  However, the market-wide value recovery will plateau in 2018.

Performance will beat consensus – again

Returns in 2017 could hit double digits while 2018 will remain positive at closer to 7%.

Summing up

After a strong 2017, we expect total returns to slow to more normal levels in 2018, as the capital value recovery eases for most sectors.

As performance eases into 2018, it would be easy to enter ‘wait and see’ mode for lack of a significant catalyst.  However, we believe investors will take advantage of market liquidity to sell non-prime assets where appropriate, look for value add opportunities and, overall, reposition for a period of slower capital growth.