By Adam Cornbloom
With our new real estate market update we are pleased to provide our clients with a helpful insight on the UK property markets.
OFFICE SPACE - IN DEMAND
Office occupancy is generally healthy with vacant unit supply in the market thinning - new office space is expected to be limited in the coming year as inflated building costs and uncertainty over EU construction workers continues to take its toll on construction.
It is worth noting that 90% of new office space scheduled to be constructed outside London in 2019 is in Manchester and Birmingham.
While our clients have seen signs of tenants postponing new leases and renewals as Brexit uncertainty continues, JLL suggests demand will resume in the second half of the year.
There have been some significant votes of confidence in London's commercial property market despite Brexit. Of note is the £1.2bn purchase of Goldman Sachs' London HQ by South Korea's national pension fund, with Sony and Facebook entering into pre-let agreements for headquarters in Kings Cross and Paddington respectively.
Flexible office space remains the order of the day and we can expect more landlords to begin offering this alternative to traditional leasing throughout 2019 as the model becomes more mainstream.
JLL predicts flexible office stock across Europe will increase by an estimated 25% p.a. for the next 5 years, and in the UK the likes of WeWork have now been joined in the market by Legal and General and The Crown Estate, who recently introduced flexible workspaces to their portfolios.
Land Securities has announced plans to launch flexible office spaces at 123 Victoria Street in early 2019. While we can expect some slight disruption to the traditional office market, the flexible offering still represents a very small proportion of the UK market.
THE FINAL MILE - INNER CITY INDUSTRIAL
We are hearing increasingly of significant demand for inner-city warehouse space (ICWS). The continuing rise in people moving to city centres and the amenities that urban living demand are driving strong demand for easy access to goods.
This demand is fuelled by the continuing evolution in e-commerce - think Amazon same day delivery. Vendors will increasingly be expected to deliver goods to urban residents within 24 hours further driving demand for local storage space.
RESIDENTIAL OUTLOOK - OPPORTUNITIES EXIST
Savills report prime residential property prices falling by 3% in London and 0.9% nationally in 2019. Prices for sub-£1million properties enjoyed modest average increases of 0.4%. As widely reported, property prices in the Midlands and North remain more robust than the remainder of the country.
Focusing on the London prime market, since the market peak of 2014/15 prices have on average fallen by 10%. Savills forecast a further 1% drop in London in 2019, prices remaining steady in 2020 and increases of around 3.5% in 2021. Based on previous downturns, investors may find the current climate presents good value opportunities.
Nationally JLL predict average prices increasing by 0.5% in 2019. It is estimated this will rise to 1% nationally in 2020. Rental income is predicted to grow by 1.5% nationally in 2019.
We hope you find this article useful and look forward to keeping you updated throughout the year.
For further advice, or to discuss your cases generally, please contact Adam Cornbloom.