The latest research from Strutt & Parker presents an optimistic outlook for property in 2014 as recovery begins to extend beyond central London, investment demand continues and rental growth emerges in most sectors.

Strutt & Parker’s research finds that UK institutions are making a positive allocation to real estate and that their influence will increase in the coming year, particularly in the regions. Demand from foreign investors will also continue at similar levels to 2013, when 45% of transactions were undertaken by foreign buyers.

According to Strutt & Parker, 2014 will see total returns in all sectors reach double figures as a result of the relentless weight of money chasing long income and yield shift; rental growth is also expected to play a bigger part in positive total returns providing a continuing case for real estate. Offices will see the highest total returns in 2014 of 13.6% followed by industrial at 10.7% and retail at 10.2%.

Stephanie McMahon, head of research at Strutt & Parker said: “Five years on from the downturn we are finally seeing signs of occupiers wishing to take better quality space across the UK, resulting in a combination of rental growth and yield compression, leading to double digit total returns this year across all real estate sectors.”

Offices are set to be the winner of 2014 with both capital and rental growth exceeding other sectors.  Offices will see capital growth of 9.0% and rental growth of 5.9% overall.  Substantial rental growth for offices, particularly in the Central London fringe markets, will be driven by footloose occupiers according to Strutt & Parker.

Retail has realigned itself in terms of economic changes, according to Strutt & Parker, but the increase in online retail (now accounting for 12% of all retail spend) has created a polarisation of town centres that are able to attract residential, service and amenity demand and those that cannot. Across the sector, capital growth will reach 5.0% in 2014, up from 3.2% in the previous year whilst rental values are expected to rise 1.3% in 2014, up from 0.0% in 2013 when there was no rental growth in this sector.

Whilst industrial and manufacturing parks are predicted to witness total returns of 10.7% and a small jump in capital growth to 4.4% in 2014 Strutt & Parker suggests that the changing manufacturing base in the UK could lend itself to a mispricing opportunity as parks can be valued by supply chain operations and not just length of income.  The industrial sector is expected to see rental growth of 2.2% this year, up from 0.6% in 2013.

Andy Martin, senior partner at Strutt & Parker said: “Despite concerns over interest rates and more specifically bond rate rises, there is enough momentum in the market to maintain levels of activity and the expectation of rental growth will help balance the figures.”