The property industry will have to wait until 2014 until it sees any upside, says Jones Lang LaSalle.
The agent, which this morning hosted its annual Property Predictions breakfast, said that outside the Olympic Park 2012 had been “a year to forget”.
Continuing global uncertainties and subdued economic growth means that 2013 is unlikely to bring a dramatic turnaround, says JLL, but in a year’s time it believes that the foundations for recovery should be in place and some light will be visible at the end of the tunnel.
“For property markets the implications are clear,” says the agent. “Demand will respond slowly to economic thaw as occupier confidence rebuilds. Even with limited quality space in many markets, rents are unlikely to see much uplift outside of central London office and retail. The fall in IPD capital values has slowed of late, but further outward movement in average yields is likely.”
RESIDENTIAL
JLL believes that pricing in central London will be flatter this year, with more selective purchasing from international buyers. Uncertainties around the tax regime will continue to deter some buyers this year.
It expects prices across London to increase by 2% in 2013 – a lower rate of growth than in recent years. This will rise to 3.5% in 2014, however.
OFFICES
Speculative development in central London offices will begin this year, according to JLL, as the current pipeline is inadequate to meet an upturn in demand.
JLL expects demand to improve in the second half of the year, particularly from the TMT sector, in which it expects to see M&A activity and corporate consolidation.
In terms of rental growth, JLL is predicting a 4.4% increase in average City rents to £59.90 per sq ft and a 5.3% increase in West End rents to £100 per sq ft by the end of the year.
Outside of central London, office development is expected to remain subdued, with just 1.1m sq ft of starts on sites expected. Development finance in the regions will remain limited and JLL reckons it could be five years at least before a normal speculative development pattern reappears.
RETAIL
Some retailers will continue to struggle throughout 2013 and there will be more failures, says JLL. But the UK market is expected to continue to attract more international retailers.
However, demand for quality space is being driven by the lack of development. Although 2013 will see a pick-up in shopping centre development, Land Securities’ Trinity Leeds will be the only flagship scheme to open this year.
Around 2m sq ft of new shopping centre space will be delivered in 2013, up from 450,000 sq ft last year but well below the long-term average of 3m sq ft.
INDUSTRIAL
Speculative shed development is set to return in 2013, with 2m sq ft of schemes proposed.
Although this is not a major return to speculative development and will go no way toward providing for the estimated 24m sq ft of unsatisfied big box requirements currently in the market, JLL says leading developers will start to push the button on a selective basis in prime areas.
Growth in demand for industrial space will come from an uptick in searches from manufacturing companies and the continued expansion of the multichannel retail market.
CAPITAL MARKETS
Residential investment is set to be the theme of 2013 along with the re-emergence of the secondary market as prices consolidate and value begins to emerge.
JLL says that the recommendations laid out in the Montague review into how institutions could be encouraged into the new-build residential sector should ensure that large-scale investors finally become a presence within the residential market.
HOTELS
Portfolios of regional hotels look set to come to market in 2013 as banks finally accept that a trading and investment market bounceback will not save their loans.
“The time for the extend and pretend strategy is over,” says the agent. “Hotels are market-facing businesses that need to invest and innovate to keep pace with the ever more demanding customer bases.”
JLL believes that 2013 will be a year of realisation for the hotel market as banks now have sufficient experience of disposing and dealing with loan situations.
samantha.mcclary@estatesgazette.com
