Getting down to business and Brexit in 2019

Over the next 12 months I think there’s no doubt we will all find ourselves navigating a path through uncertainty. Against that background, guests at our Property Predictions event wanted to hear how we thought real estate will perform.

Overseas investors were responsible for 79 percent of deals in central London last year. Since the Brexit referendum the UK market has proved remarkably resilient, with 2017 and 2018 investment volumes surprising on the upside.

The UK’s fundamental attractions remain intact and our capital will undoubtedly remain a prime target in 2019, but I also predict plenty of interest in other major UK cities, particularly the ‘Big Six’ of Manchester, Birmingham, Leeds, Bristol, Edinburgh and Glasgow.

Last year, when I announced I expected 2018 volumes to reach £55 billion, some of you thought I was being a bit optimistic. However, we have seen between £60 billion and £62 billion invested in the UK and I expect volumes to hit £55 billion in 2019, assuming a deal and transition period are agreed by the end of March.

I asked those attending our event for their own predictions. The results in so far suggest you agree with my forecast – with 63 percent expecting UK commercial property returns to be slightly lower in 2019. Nevertheless, some 46 percent of respondents still expect to be a net investor.

What next for Brexit?

It seems to me the only certainty about Brexit at the moment is that we will still be talking about it next year!

Our 2019 Property Predictions report sets out how we expect short-term volatility and political uncertainty over the coming months, but if a deal is reached, we expect a quick correction and renewed interest in the UK from a range of sources.

I also note that while the UK is currently consumed by Brexit, investors will take a long-term view and we believe sectors like residential and living, industrial and alternatives – many of which are chronically undersupplied – will all continue to offer value.

Initial responses to our own predictions survey, reveal senior living is the alternatives sector’s most preferred asset class, while logistics, multi-let industrial and regional offices are tipped to be the sectors that will see the best performance in 2019.

Over the next three years I think we will see favourable employment growth in many UK cities. In Manchester we’re expecting 4.6 percent growth, Birmingham 3.9 percent, Bristol 3.6 percent and Leeds 2.9 percent.

These figures compare well with inner London at 3.8 percent, and other European cities like Amsterdam at 3.8 per cent and Munich at 3.7 percent.

As cities compete to attract the diverse talent they need, the onus will be on ensuring workspaces are being created to suit employee demands. Companies want to build flex into their portfolios so they can quickly adapt to changing space needs, while workers demand “experiential” offices equipped with the latest technology and services.

Emerging trends

Over the coming year the shortage of Grade A space in key UK office markets is predicted to intensify. London’s pipeline looks thin beyond 2019, while Manchester and Birmingham account for 90 percent of the 1.3 million square feet scheduled to be completed speculatively in regional UK cities in the next year.

In the wake of limited market supply, many investors will look for new ways to access the markets from debt funds to M&A activity and platform acquisitions.

The ever-growing appetite for online shopping will continue to ensure urban warehouses are more in-demand than ever, although I also expect alternatives volumes to continue to increase, with investors, developers and operators homing in on less established markets like retirement living.

We’re all getting used to and embracing the disruptive force of technology. But the pace of change is quickly accelerating, and I think deeper investment in ‘proptech’ will see more disruption than ever in the month ahead.

There’s no doubt we find ourselves at a pivotal moment in the UK. Uncertainty over Brexit is not going to go away anytime soon, but what I do know is that with change comes opportunity.

 

About the Author

Chris has over 30 years’ experience in the UK investment market and specialise both in up and let investment product including portfolios as well as development funding projects. Chris has worked with a wide range of institutional property company and international clients including GIC, M&G, Hermes, Schroders and Legal and General. Chris has also been at the forefront of the development of the Alternative Investment areas within JLL (Student Housing, Health, Senior Living and Platform deals). Within the JLL Capital Markets offer the investment teams now work hand in glove with the sophisticated Debt Advisory business and the Corporate Finance and M&A side. Chris was Chairman of the Investment Property Forum from June 2015 - June 2016 and now sits on their Strategic Advisory Group. Chris joined King and Co as a graduate in 1979 and has worked his whole career dealing with various aspects of the UK Investment Property Market. He ran the Investment teams at King Sturge and became Joint Managing Partner and subsequently Joint Senior Partner prior to the merger with JLL in 2011.

Leave a Reply

Your email address will not be published. Required fields are marked *

*