Prime office assets are expected to realise annual total returns of up to 11% over the next five years, with key regional markets seeing the strongest returns, according to research.
The BNP Paribas Real Estate UK property projections for up to 2028 has demonstrated the potential for strong risk-adjusted returns across major UK real estate sectors.
Prime assets in the logistics sector are predicted to deliver up to 10% in total returns per annum up to 2028 across key markets such as the North West and the Midlands.
Prime retail in and around key luxury shopping streets in Central London, such as New Bond Street, is anticipated to hit 4% per year over the same period, driven by income returns.
Total returns have been calculated looking at both capital growth and income return, with a varied picture by location and geography, shared the firm.
Investors seeking income returns will be drawn to the regional office market’s anticipated gains of 7% per annum, predicted the research. For capital growth opportunities, logistics assets in the North West and Midlands, along with offices in London’s West End and City, and Bristol, are projected to yield annual returns of 5%. Bristol, though slightly, stands out with the strongest overall rate of return, projecting an annual growth rate of up to 12%.
Charlie Tattersall, capital markets research at BNP Paribas Real Estate UK, commented: “With inflation falling and base rate cuts within sight, there are signals that we are at the beginning of the next real estate cycle. However, this cycle will look quite different from the post-GFC era, where ultra-low interest rates and cheap debt helped drive considerable yield compression.
Few real estate firms set comprehensive net-zero targets
The firm’s income return projections for the next five years indicated that prime yields are at an attractive entry point for investors. Capital growth is expected to mainly stem from rental growth, driven by ongoing Grade A supply shortages and robust demand for top-tier spaces across key sectors, shared Tattersall.
“Owners of commercial real estate must prioritise active management strategies that reduce obsolescence risk and prioritise tenant retention to generate returns,” added Tattersall.
James Carrington, head of city investment at BNP Paribas Real Estate UK added: “The London market has essentially reached the bottom and is probably the most attractive major city to invest in Europe right now, and this means capital is coming back.”
