After a tumultuous couple of years, 2022 got off to a strong start. Yet as the year progressed, significant challenges emerged, and major economies around the world are now facing a downturn and the prospect of much higher inflation and interest rates. Across UK real estate, some sectors are experiencing strong headwinds, while others are showing resilience.

2022 marked a clear turning point for residential property. The higher cost of debt is expected to suppress transaction levels and put downward pressure on prices for private mortgage-backed purchasers. Uncertainty in the planning environment will also squeeze housing development activity, but the fundamentals of supply and demand indicate opportunity for investment and innovation across the sector in the next five years.

As increased emphasis is put on both food security and climate targets, rural farmland is expected to continue to be counter-cyclical. And in the commercial sector, occupier demand for prime high quality sustainable offices and warehouses is set to deliver rental growth, despite any recessionary shocks to demand.

Could current market conditions present the buying opportunity of a generation? Investors will have to approach this as a new era, where income returns and rental growth will be the main drivers of total returns across most major asset classes.

Our UK Cross Sector Outlook for 2023 addresses the difficult balance of avoiding risk while still remaining agile and innovative. We present eight new top picks for investment for the year ahead, highlighting the opportunities and impacts across the commercial, residential and rural sectors.

In a world of data, it is surprisingly difficult to arrive at comparative income returns for different asset classes. For residential buy-to-let investments, our model uses a combination of data from the valuation office, the Land Registry and Rightmove. We have then had to take into account that while commercial property income streams will often be underpinned by full repairing and insuring leases, in the residential markets these are the responsibility of the landlord. Agriculture tenancy obligations sit somewhere in the middle. For consistency, we provide figures net of all irrecoverable costs in line with IPD industry standards. No account has been taken of the restricted tax relief available to private buy-to-let investors using mortgage finance (which would reduce effective income returns for some investors).