This week we released our predictions for 2016. Being bold about trends and expectations for the year ahead in the first week back is not necessarily an easy thing to do but our team of experts came up with a really interesting set of opinions.
It was a high octane media day for me starting with an appearance on BBC 5 Live’s Wake up to Money at 5.45am. This was swiftly followed by a one on one interview with Simon Jack, the BBC’s Business Correspondent on Radio 4’s Today Programme at 6.30am and finishing the day on Sky News being interviewed by Ian King at 6.30pm. – I slept well that night! Unsurprisingly housing and home ownership was the reoccurring theme in all three interviews and I was pleased to be able to provide JLL’s views on what needs to be done to address the current housing crisis in the UK.
So back to our predictions and what are the conclusions? 2016 will be a year of high political drama but actually the economy, and returns on property, will be steady (dare I say……boring!) which is a positive result for both.
So, why are we taking an interest in politics? We have 3 key areas affecting our local, national and international status and therefore business:
- London Mayor Election
- Referendum on EU Membership
Our Predictions event this year was run in a Question Time format hosted by BBC commentator John Humphrys, with leaders from our investor, occupier and research teams alongside the Head of Economics for CBI, Rain Newton-Smith. John Humphrys did a fantastic job of putting our panellists on the spot with difficult and probing questions whilst keeping the audience amused with interesting anecdotes. Needless to say there was no opportunity to sit on the fence!
Out of all these issues, the referendum on Brexit will dominate and is likely to restrict transactional volumes for a period on the run up to the vote. Whilst the majority of our audience feel that we will stay as part of Europe it is abundantly clear that this will go right to the wire as public opinion does not necessarily reflect business opinion.
In terms of our property predictions we believe the steady economic picture will lead to solid growth in the property arena if slightly less marked than 2015. IPD forecasts are just under 10% as opposed to the previous 2 years at 17% and 14% respectively. As capital growth slows down and investors become more selective in their criteria, 2016 will be all about rental growth. Understanding occupiers’ requirements is essential because if you do this you will be able to secure better rental growth than the competition and see performance ahead of the benchmark.
Demand for offices will remain strong throughout the year but many occupiers will be dismayed by the lack of choice as a shortage of stock throughout the UK continues to bite. For occupiers and businesses, the HR and property strategies are now converging. Location is just one aspect, but the building’s design and immediate amenities around it are just as important to attract and retain staff in a competitive world.
From the Christmas trading results it is clear that the structural changes in Retail are truly playing out. Customers either want an experience or convenience, but this year they also wanted security – pedestrian footfall definitely dipped in high profile locations following the attacks in Paris. This did not quell consumer demand though as online sales continued to increase. This trend means that we will see a widening gap between the prime and secondary retail locations.
Of course the boom in online retail sales feeds into the logistics arena which once again is the sector where we anticipate most significant rental growth in 2016. There is still a shortage of supply and occupiers’ requirements are changing continuously with more demand to be closer to major cities with flexible sizes.
The one area where politics and economics will interact with property most markedly is housing. Despite recent announcements in the House of Commons relating to the Housing Bill, most of central government’s efforts are being made to fuel demand rather than deal with the main issue of supply. But we do believe that 2016 will be the year which PRS/Build to Rent truly emerges as an asset class – and we mean it this time.
In terms of house price increases, 2016 will be the year when the north and south converge in terms of growth prospects. The South East and Central London have been dominating the headlines in terms of price increases and we anticipate that areas such as Manchester will rival the aspirations of the South East at around 5% in 2016.
In conclusion, there will be times in the year ahead that the UK Business community will feel in a dark place as politics dominates the landscape. However it is important that we look at the geopolitical activity taking place around the UK as well. For investors and businesses the UK still represents a very good prospect for return on investment and attracting talent to their business proposition. We are well placed for steady growth. Dare I say, property returns may become more boring – but if a return between 5-10% is boring, then surely I like boring.