Strong capital value growth was undoubtedly the key theme of 2014, with growth across all sectors stronger than we were forecasting at the beginning of the year. We expect to see continuing capital value growth across all prime sectors in 2015, albeit at a slower rate.

The general election in May will definitely have some effect on sentiment, though in the agricultural and commercial sectors we expect the effects to be relatively muted. In the residential markets the spectre of mansion tax, combined with the Mortgage Market Review could lead to a more sustained hiatus in capital value growth in 2015.

"Overall, we expect that 2015 will be another strong year for UK real estate"

Generally, we expect that the macroeconomic story for the UK will remain benign, with base rates remaining unchanged until the second half of the year or possibly 2016, and the combination of low oil prices and recovering incomes giving a boost to the UK consumer.

The high returns that will be thrown off by all property sectors in the UK will continue to attract attention, and we expect that UK real estate will continue to deliver high returns in comparison to other asset classes.

This will mean that domestic and international demand for prime and good secondary assets will be strong, though we expect to see more focus on supply and demand fundamentals in 2015, rather than just the potential for yield shift.

Overall, we expect that 2015 will be another strong year for UK real estate, but investors are going to have to work harder to identify markets and sectors that will deliver high returns. Graph 7 illustrates the relationships between property sectors.

CLICK ON IMAGE BELOW TO ENLARGE

Commercial view

The commercial markets in 2015 will still offer opportunities for both risk-averse and risk-embracing investors, though the stronger than expected bounce in capital values in 2014 will diminish.

Residential view

Following a year of strong mainstream house price growth in 2014 that ran well ahead of the economic recovery, we expect much more subdued price growth in 2015.

This is particularly the case in London, which has now outperformed the rest of the UK for over nine years and where correspondingly, affordability is likely to look increasingly stretched as interest rates rise.

Farmland view

We expect further growth in UK farmland values in 2015, but the market will continue to be diverse and a clear understanding of local market conditions will be critical to both buyers and sellers to ensure realistic expectations.

For further detail see our Forecasts.

Taken from
Market Survey: UK Agricultural Land 2015