Prime office assets are expected to realise annual total returns of up to 11% over the next five years, with key regional markets seeing the strongest returns, according to new figures from BNP Paribas Real Estate.

Prime assets in the logistics sector are predicted to deliver up to 10% in total returns per annum up to 2028 across key markets such as North West and the Midlands.

Prime retail located in and around luxury shopping streets in central London, such as New Bond Street, W1, is anticipated to hit 4% per year over the same period, driven by income returns.

Investors seeking income returns should look to regional offices, said BNP PRE, where gains of 7% per annum are predicted.

Those looking for capital growth opportunities should focus on logistics assets in the North West and Midlands, and offices in London’s West End and City, and Bristol, where annual returns of 5% are anticipated.

Bristol stands out, albeit marginally, as offering the strongest overall rate of return, with an annual rate of growth of up to 12% pa over the forecast period.

Charlie Tattersall, associate director in capital markets research at BNP PRE UK, said: “With inflation falling and base rate cuts within sight, there are signals that we are at the beginning of the next real estate cycle. However, we think this cycle will look quite different from the post-GFC era, where ultra-low interest rates and cheap debt helped drive considerable yield compression.”

He added: “Our income return projections for the next five years reflect prime yields having now corrected upwards to an attractive entry point for investors able to source core product. We see the bulk of capital growth coming from rental growth, rather than downward yield shift as risk-free rates settle at more ‘normal’ levels. This reflects our forecasts for strong prime rental growth off the back of an ongoing grade-A supply squeeze across core real estate markets and resilient demand for best-in-class spaces across the main sectors.

“In short, owners of commercial real estate must prioritise active management strategies that reduce obsolescence risk and prioritise tenant retention to generate returns.”

The forecast findings are detailed in BNP Paribas Real Estate’s Capitalise On The Future report, which is centred around the real estate outlook for the UK in the medium term.