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Offices to deliver the strongest returns over five-year horizon
London, 4th April 2013 – Jones Lang LaSalle’s latest UK forecasts indicate that overall property performance will show a healthier picture than last year. All-property returns are expected to reach 4.6% in 2013, compared with 3.4% in 2012. This rises to 6.2% over the five-year forecast period, but will still be lower than long term averages.
Offices will deliver the strongest returns over the five-year horizon, averaging 7.1% a year and led by Central London. This is followed by Industrial (6.2%), with Distribution Warehouse expected to perform better than Standard Industrial. Meanwhile, the Retail sector will show weaker returns, with Shopping Centres lagging behind, dragged down by weak performance this year. This sector will show solid recovery from 2015 onwards, in line with a stronger economy.
Mark Jones, Director of Strategic Asset Management at Jones Lang LaSalle, said: “These latest forecasts still show UK direct property delivering a real return over 5 years of under 5% per annum, although the strong performance disparity between Central London and the rest of the UK will persist."
Returns will be driven by rental growth over the longer-term, as yields are anticipated to remain stable. All-property IPD rents are expected to remain broadly unchanged this year, with offices as the only major sector to record rental growth in 2013.
According to Andrew Burrell, Head of Forecasting at Jones Lang LaSalle, added: “Another weak year is forecast for rental growth, aside from London offices. Economic recovery brings an upturn from next year, but even then increases lag inflation over the longer term.”
Demand in the UK retail market will continue to be subdued, as the economic challenges facing consumers and retailers persist. After showing rental falls in 2012, retail rents will remain stable this year, with the five-year forecast average remaining firmly below its long term trend. Retail warehouses are expected to perform better than the other retail sub-sectors, with rental growth averaging 1.7% a year over the forecast period.
Jones Lang LaSalle Forecasts of IPD UK
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