JLL predicts investment volumes in UK property to total £55bn in 2019
Industrial sector will continue to outperform with continued demand for alternatives
London - JLL has predicted that investment volumes in the UK property market in 2019 will total around £55bn, with returns of 4.3%. This is slightly down on the £60bn investment volumes and 5.6% returns the firm now expects for 2018.
JLL highlighted that global allocations for real estate will continue to grow with the UK a major target for funds looking at their first wave of international acquisitions. However, the real estate adviser suggested that the lack of supply across the market could force investors to look at alternative ways to access the market such as M&A or platform acquisitions, or routes such as debt funds.
Jon Neale, head of UK research, JLL, said: “The UK’s fundamental attractions for international investors remain intact, which is why it still sees the strongest cross-border inflows of any country. The ‘wall of money’ directed at UK real estate will only become more imposing. However, it will be targeted at prime product, which will be in short supply. Consequently, we expect this to limit volumes, which will total circa £55bn – assuming a Brexit deal is secured.
“Gilt yields and swap rates are clearly on an upward trajectory, and this is increasingly reflected in debt markets. Of course, the spread between rates and property yields is still high by historic trends, but this cushion is going to get thinner. This is likely to have little impact on prime, given the huge weight of money targeted at well-located, long-let property – but it could have ramifications elsewhere in the market, potentially producing more sales. The spread between prime and secondary will widen throughout the year.”
JLL’s property predictions for 2019 also include the sustained performance of the industrial and logistics sector and maturation in the flexible office sector as innovation, especially from corporate users, accelerates.
JLL forecasts that there will be continued investors interest in the alternative sectors in 2019. The evolving nature of many alternatives and greater understanding of them means that investors will be prepared to look further along the risk curve in order to achieve higher returns.
Neale added: “There is still clearly a real risk of no-deal. There is no denying that this would be a real economic shock and would have implications for the market. However, most investors are well-capitalised and LTVs are low, suggesting that there would not be a huge number of forced sellers or a major impact on values. There may be some opportunities for the fleet-footed, but as in 2018 the market would bounce back, perhaps following a period of currency fluctuations.”
The full 2019 Property Predictions report is available here