PropList Blog
Colliers - Real Estate Investment Forecast Q1

First edition in 2018 of Colliers Real Estate Investment Forecasts

The eagerly awaited first edition of Colliers 'Real Restate investment Forecasts' in 2018.

Colliers forecasts total commercial property returns of 6.1% in 2018, down from 10.2% in 2017, comprising 1.2% capital growth and 4.9% income return. At 5.6%, all-property equivalent yields are expected to remain unchanged against 2017 as investment demand remains steady. Nevertheless, total returns will slow to 4.9% in 2019 as yields soften by less than 10 bps, capital growth flat lines and income becomes the main component of returns at 4.9%.

This flat projection, though, belies high variability across the main commercial sectors.

Industrial is expected to remain the star performer in 2018, with all-industrial yields forecast to move in by 24bps. Total returns are predicted to reach 12.5%, comprising capital growth of 7.4%, income return of 4.8% and a 0.3% residual. We expect double-digit total return growth for standard industrials across all regions, led by London at 14.6%.

Total returns for distribution warehouses are forecast to experience growth of 10.8% this year before slowing to 4.6% in 2019. Despite ongoing Brexit uncertainty and potential trade wars, manufacturing and other business surveys signal ongoing strength across the sector. The office and retail sectors are forecast to see much weaker returns this year.

Offices are anticipated to yield a total return of 4.7% in 2018, comprising 0.5% capital growth and 4.2% income return. Offices outside of Central London will see much higher returns, with ‘Rest of UK’ forecast to record total returns of 8.6%, closely followed by Rest of London at 7.6% and the South East at 7.5%. In contrast to Central London, yields in these regions will harden slightly, driving modest capital growth. Demand for grade A space is set to remain strong and will support a continuation of overseas appetite for trophy assets in London and prime assets further afield in the UK, especially regional CBDs.

The retail sector will struggle in 2018 with weak consumer confidence and increased costs, especially business rates and the National Living Wage impacting and adding to financial strains for occupiers. Total returns are expected at 3.5%. Income returns of 5.3% will be compromised by negative capital growth, down by 1.7%. Shopping centres will fare particularly poorly, with a total return of -1%, as yields move out and capital values begin to fall.

In contrast, Central London standard shops will continue to outperform the sector as a whole at 6.2% total return. Occupiers will be supported by rising overseas visitor numbers, the part-pedestrianisation of Oxford Street and the opening of the Elizabeth line. Furthermore, positive real wage growth is likely to return in mid-2018 and support a recovery in consumer confidence, bringing some respite for retailers who are struggling.


For a full copy of the report go to Colliers or follow the link here.