Industrial assets and London’s West End office market will be the only two property sectors to outperform the “all property average” during the next five years, according to an International Property Forum (IPF) report.

Over the next five years the City of London is expected to deliver a 4.1% return after a slow 2023 (Photo: Colin & Kim Hansen/Wikimedia Commons)

The IPF spring forecast showed “robust rental growth” in the industrial sector as sector leaders forecast an upgraded five-year rise in rents of 3.3% a year, an improvement of 75 basis points from the previous report three months earlier.

The West End Office market is also forecast to outperform the all-property average, with a projected rent rise of 1.9% a year, up 100 basis points.

The IPF, a members’ organisation for those operating in the UK property investment market,  said capital values are expected to fall in all sectors this year, despite significant upgrades for all sectors apart from of City of London offices and the wider office market.

The industrial sector has the strongest capital value growth forecast over the next five years, at 2.5% a year.

The report also found significant divergence in 2023 total return forecasts between the sectors. Retail warehouses are expected to outperform, with a return of 4.4%, while City offices are forecast to underperform the market with a -4.6% return.

Over the five-year time period, the retail warehouse sector is projected to be the top performer, with an annual return of 7.4%, ahead of industrial at 7%. City offices lag the other sectors with an annualised return of just 4.1%.

In central London, the impact of projected capital value falls is reflected in corresponding total return figures: the West End projection is -1.0%, stronger than in the previous quarter, while the City is forecast to be hit by a -4.6% fall.  

The report said: “By contrast, the City of London forecast has weakened although there is more certainty around the results compared to last time.”

Returns for the remaining years are all positive, with anticipated average 2024 returns of 6.3% for the West End and 4.6% for the City of London.

In subsequent years, the City of London market is projected to marginally outperform the West End. With the exception of the 2024 City projection, all other forecasts have been upgraded from the last survey, with the greatest adjustment of 80 basis points to the 2025 West End forecast.

Over the five-year annualised period, the West End is forecast to return 5.1% a year and the City 4.1%.