Can UK real estate maintain momentum in 2019?
Space in Grade A office and industrial properties is set to remain in high demand across the UK in 2019 but emerging opportunities in power generation and data centres will also come to the fore.
Growing urban populations in the UK’s big cities mean competition for space is intensifying – and giving rise to developments that better meet the needs and demands of modern living. It’s likely more sites, especially in London, will have mixed residential and industrial uses, according to JLL’s 2019 UK Property Predictions.
Meanwhile, a shortage of Grade A office space will put the focus on refurbishment, rather than new build. And the growing appetite for online shopping, combined with expectations for faster delivery times, is ensuring urban warehouses are more in-demand than ever.
Brexit will continue to dominate domestic politics – and impact business sentiment. Jon Neale, JLL’s head of UK Research, says while political uncertainty will feature heavily in the coming weeks, he does not expect there will be a no-deal Brexit, although this remains a real risk.
In this climate, uncertainty will complicate some occupier short-term decision making. “The first quarter of 2019 may see dampened economic activity, but there will be a revival after the deal,” he says.
Here are the key property predictions set to play out in 2019:
Office market heats up further
Over the coming year the shortage of Grade A space in key UK office markets is predicted to intensify. London’s pipeline looks thin beyond 2019, while Manchester and Birmingham account for 90 percent of the 1.3 million square feet scheduled to be completed speculatively in regional UK cities in the next year.
“An uncertain future makes speculative development a riskier prospect and developers are likely to refrain from making any significant decisions in the short term at least. We expect that refurbishments, rather than new builds are likely to be the order of the day,” says Elaine Rossall, JLL’s Head of UK Offices Research.
There are tentative signs leasing activity is also starting to slow, as occupiers pause to assess the implications of Brexit. However, Rossall believes there will be a bounce back in the latter half of the year.
Sue Asprey Price, JLL’s head of UK corporate solutions, says flexible office space will reshape portfolios and is set to rise up the agenda for landlords and tenants to meet the “changing expectations of the workforce.”
Businesses will also look to invest more in integrated and smart technology solutions for workplaces, making them mainstream in in 2019.
Industrials and Alternative: sectors on the rise
In London, growing demand for space, will see more schemes with mixed industrial and residential uses. There are likely to be more multi-storey ramped buildings, or multi-level, multi-user buildings serviced with cargo lifts.
However, this trend for mixed industrial and residential use sites is not expected to spread into other UK regions.
More people want to live in city centres and the UK has seen a rise in people – especially the young moving in. This is predicted to further drive demand for centrally-located last-mile logistics facilities, catering for both businesses and consumers.
This urban living trend means amenities like bars, cafes, restaurants and shops will continue to spring up around new housing developments - all of which need easy access to supplies stored in warehouses. And as e-commerce continues to evolve, consumers are ordering everything from medicines to clothes online – and increasingly expect it to appear on their doorstep within the day – or even the hour.
Meanwhile, the alternatives sector is still underestimated, according to JLL. Student housing will continue to attract strong interest, while developers and operators are also turning their attention to less established markets like retirement living or hybrids like co-living schemes.
Automation is increasingly a key component of large warehouses as operators bid to drive down costs and improve service. However, this will also increase demand for power.
Indeed, across the built environment, the growing use of robots, and electric vehicles, means demand for - and access to - power to keep operations running as normal will become increasingly important.
All eyes on technology and data
In 2018, PropTech firmly established itself in real estate, but 2019 is the year it will need to come of age, according to Alex Edds, JLL’s director of innovation.
He says tech companies will have to sharpen their offer to demonstrate how smart offices and other innovations offer a “real return on investment.” But he predicts companies will realise the power of data and analytics.
Early adopters will steal a march on rivals as they learn how they can re-shape their businesses to offer new products and services by adopting machine learning and data to analyse and plan services, he says. This could help with everything from cost analysis, to predicting new development hotspots or anticipating purchasing habits.
“There is no doubt that our industry is on a long journey of being data rich and data driven,” says Edds.