Abrdn predicts that the total returns from UK property will average 8% annually over the next three years
Abrdn, the asset management firm based in Edinburgh, reports that the UK is leading a global recovery in prime real estate assets, following a period of political stability and market repricing after the availability of cheap mortgages ended.
The asset manager suggests that the UK now stands out as a bastion of relative calm in a more complex global political environment. Abrdn predicts that the total returns from UK property will average 8% annually over the next three years.
Anne Breen, global head of real estate at Abrdn, told City AM: We believe that the real estate sector has now mostly repriced following readjustments as the era of cheap debt came to an end. As a result, we have now upgraded our house view on real estate to neutral after being underweight for nearly two years. Essentially, we think it is no longer the time to be underweight to real estate versus other asset classes.
Breen further explained that this real estate cycle is notably different from previous ones, as rental income has not faced the same challenges.
That means the recovery for future-fit buildings should be faster – boosted by lack of high-quality supply, she said.
Abrdn is especially optimistic about residential, industrial, and certain retail properties, which are expected to outperform the wider property sector. Breen highlighted that residential properties are attractive due to imbalances in supply and demand, while industrial and logistics properties are benefiting from the need for modern warehousing to support global and local distribution. Retail sectors that have adapted to changes in consumer behaviour since the pandemic are also performing well.
The fact that the construction sector is suffering has turned out to be good news for home buyers and investors as less inventory is being prepared to dampen market prices. Construction output is forecast to decline by 2.9% this year, worse than the 2.2% contraction that was forecast in the previous quarter. Private housing new build and repair, maintenance and improvement (rm&i) have been the main drivers of the underperformance.