According to a survey by global real estate management firm AEW, the UK will be the most appealing market for investors for the second year in a row in 2023.

The European Annual Outlook for 2023 research from AEW explores how investors may prepare for severe political, economic, and financial upheavals that are transforming the landscape for property investment.

For the second consecutive year, the UK is placed first among 168 covered market categories in terms of relative value over the next five years, with Benelux ranking second, demonstrating an above-average share of attractive and neutral markets.

Returns on all property in Europe are expected to be positive from 2023 to 2027, while yield broadening has reduced anticipated returns to 4.0% per year over all 196 sectors, down from 4.7% half a year ago.

According to AEW, rising government bond rates are causing higher property yields and constraining capital value growth.

Based on the analysis, the most robust sectors for rental growth are residential and logistics.

According to AEW, the increased cost of debt financing and development, as well as ESG standards across all asset classes, may further constrain supply, insulating most industries from the recessionary impact that reduces demand for space.

“Unsurprisingly logistics, despite the largest expected yield expansion, continues to be the most attractive sector, given the anticipated rental growth.” said Hans Vrensen, managing director, head of research and strategy, Europe at AEW.

“We also project positive prospects for income growth in residential. Prime shopping sectors remain attractive on a total-returns basis, while the impact from working from home on offices is less severe than previously anticipated.”

Vrensen also emphasized the importance of the real estate industry continuing to face supply-limiting issues such as growing debt finance and building costs. “We expect these supply limitations to counter the negative impact on demand from wider economic headwinds,” Vrensen added.