Increased investment activity towards the end of last year led to an improvement in near-term forecasts for UK real estate, according to the Investment Property Forum’s (IPF) latest consensus forecast.

The impact of the improvement in late 2016 resulted in the All Property index’s total return rising to 3.2%, compared to the 1.3% forecast three months ago.

However, the IPF said capital market sentiment has weakened again for 2018, leading to a further drop in the average forecast of total returns in that year.

The IPF’s latest UK Consensus Forecasts report, based on independent forecasts from 25 property consultants and fund management houses, covers the five-year period from 2017 to 2021.

The IPF said capital value growth rates have improved – but remain below zero for most sectors, with industrial being the only sector expected to return positive growth, at 1.3%, over the year.

In 2018 and 2019, rental growth may be weakly positive, averaging 0.1%.

“Confidence has deteriorated in the prospects for capital markets next year, with growth projections for all sectors falling over the quarter,” the IPF said.

“While still expected to outgrow 2018, a further weakening of expectations for 2019, noted last November, has produced softer capital growth forecasts in all sectors,” the IPF said.

Total returns for 2018 and 2019 are now expected to average 4.3% and 5.8% respectively, from 5.1% and 6.7% previously.

The five-year All Property index average rental growth rate has crept up to 0.8% per year, from 0.7% in November and 0.6% in August.