The industry is positive on market performance over the next 12 months; particularly so for London, where rents, capital values, and yields, are anticipated to continue on an upward trajectory (see Graph 2). The market outside of London is expected to fare less well, with a further decline in UK capital values expected, although UK rents are predicted to rise.

Many in the industry realise that they may not be able to capitalise on falling UK values, despite increasingly attractive yields. Fewer now expect to be able to purchase ‘distressed stock’ in 2013 than they did in 2010. There is a dawning realisation that low interest rates are suppressing repossessions. More activity is expected in every area, with even the development of new flats pushing into positive ‘do more’ territory (see Graph 4).

...but less so on the economy

The industry’s take on the economy over the coming year is less rosy (see Graph 3). Economic growth is expected to decline, along with an increase in the cost of finance and mortgage rates. The bumper development profits recorded over the last year are not anticipated to last; all industry sectors expect performance to slow in 2013.

The industry is split on interest rates, with bankers, and to a lesser extent developers, investors and advisory, expecting these to fall in the coming months, while a small majority, concentrated in the public sector, anticipate an interest rate rise.

Momentum in PRS Builds

Four of the top six areas of anticipated activity in 2013 relate to the private rented sector (PRS). According to our survey, we can expect more investment and development of PRS houses and flats in the next 12 months. It is notable that houses continue to be favoured over of flats. The sting of flatted over-supply from the buy-to-let boom is evidently still felt by the industry.

Our survey suggests that growing demand for rented housing is well recognised (see Graph 5), while fewer now regard the PRS as a niche sector. Whether this will translate into large-scale investment has yet to be seen. The recommendations of the Montague Review are a step in this direction, and there is a general consensus among survey respondents that the number of residential funds will grow over the next 12 months. Momentum is building...

Taken from
Savills Sentiment Survey: Results snapshot 2012