However due to low borrowing costs and avoidance of general recession, the dip in property returns will be short and shallow by the standards of previous cycles The firm predicts total annual average returns of 7.4% from property over 2003- 2005, compared to 10.6% pa over the past five years. But in real terms however the forecast returns are in line with property's long term average.
The problems facing the office market--with rents falling in London and the South East of England--will drag down the sector as a whole and no growth in average office rental values is expected before 2005. Until now resilient household spending has helped to underpin the retails and industrial sectors but with the consumer sector now showing signs of reduced momentum, Insignia Richard Ellis forecasts weaker rental growth in both retail and industrial markets over the next two to three years.
IRE Research Director Peter Damesick said: "Property returns will be basically income-driven over the next three years. Low interest rates are expected to continue to help anchor property yields. Investors can no longer expect rapid capital accumulation from equities and gilt yields are low. In this environment, an asset offering a high, reliable and progressive income stream has great merits."
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