Savills has increased its outlook for UK real estate returns in its 2025 cross-sector forecast, predicting an average total return of 7.4%, up from 6.8% in 2024.
The real estate advisor highlights a recovery in capital value growth across most sectors as a key driver of improved performance, alongside steady income returns.
Residential buy-to-let in the North West is expected to remain the top-performing investment, as in 2024. Central London and regional offices have climbed Savills’ rankings due to limited supply of prime space and the expectation of yield hardening.
Savills forecasts 12 UK property sub-sectors will deliver annualised returns exceeding 8% between 2025 and 2029, up from eight sub-sectors in the previous forecast period.
The report also notes that while further interest rate cuts are expected to boost transactional activity, the Government’s Budget measures will have mixed effects. Retail, leisure, and agricultural sectors are likely to face the greatest challenges, while changes to ‘non-dom’ taxation are set to affect prime central London’s residential market.
James Gulliford, joint head of UK investment at Savills, said: “The 40-year high of inflation has passed, and most forecasters are predicting around 100 basis points of base rate cuts by the end of 2025.
“Both of these are good news for property occupiers and landlords, and should bring increased transactional activity. However, the Budget has cooled some of our forward views slightly.
“Overall, though, our outlook for 2025 and beyond is more positive than it was 12 months ago, with both income and capital value growth expected across most sectors.”
Savills expects the commercial real estate market to benefit from business expansion in 2025, driving demand for shops, offices, factories, and warehouses.
An undersupply of prime space in core locations is likely to sustain rental growth and attract institutional interest, particularly in prime retail streets, shopping centres, and retail warehouse parks.
In the residential market, Savills sees a recovery that began in 2024 continuing, with house price growth of 4% forecast for 2025 and total growth of 20–25% expected over the next five years.
Sustained interest rate cuts will be critical to bringing more buyers into the market, particularly second and third-time buyers. However, buy-to-let investment may remain constrained due to regulatory reforms and tax surcharges.
Rural property also remains an attractive investment opportunity despite challenges such as poor weather and policy changes.
Savills expects farmland values to remain stable over the next five years, driven by demand for food production and environmental initiatives.
