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UK urban logistics strongest performing property sector in 2020, predicts JLL

UK urban logistics strongest performing property sector in 2020, predicts JLL

JLL has predicted that investment volumes in the UK property market in 2020 will total around £55bn. This is up 17% from the estimated £47bn of investment volumes that the firm expects for 2019. 

In its Property Predictions, JLL cites that the ambitions for a ‘net zero’ real estate industry will only increase. Last year (2019) saw the first wave of commitments across the industry, particularly from investor clients. 2020 will be the year when we will see mass uptake of the commitment.
                                                                                                          
JLL also highlighted that urban logistics will continue to see the strongest performance of any sector. This being driven by the changes being seen in retail and the continued growth of e-commerce which mean that the challenges of getting goods to consumers, particularly in a city such as London, become ever more complex and in need of real estate solutions. JLL cited that this could even lead to some downward pressure on yields for certain industrial product, but that the main effect will be on rental growth – with over 5% expected for inner London. 

Jon Neale, head of UK research, JLL, said: “The UK market is likely to recover somewhat during the first half of 2020, as investors become more confident following the Conservative victory and the likely passing of Boris Johnson’s Brexit deal. However, caution could grow as the year progresses and the new ‘cliff edge’ of a December 2020 deal becomes visible. 

“Against the backdrop of a slowing world economy, the UK’s relatively high yield and yield spread could be a very attractive proposition to investors – although as in 2019 the problem could be lack of product. Sterling will probably continue to appreciate in the wake of the deal, it could offer overseas investors the chance to sell and take profit.”

JLL forecasted that supply squeezes in the office market could lead to rental growth in some London submarkets and some of the more constrained regional cities. Development has been comparatively low in most office markets over the past few years, despite the fact that demand has remained robust. Despite the end-of-year cliff-edge, construction of new space is likely to tick upwards over the year.

Neale added: “Vacancy rates for offices are now well below historic averages in central London and the major regional cities. Based on known requirements and a potential post-Brexit bounce, this could lead to a surge in both rents and pre-letting activity in 2020. In some locations, such as Edinburgh and Leeds, it is no exaggeration to talk of a supply crisis; in others, such as the City and Manchester, the sheer expansion in demand suggests the relatively high level of new build will easily be absorbed.”

Finally, JLL predicted that the build-to-rent sector will grow rapidly over 2020, as large-scale purpose-built living becomes ever more acceptable and prominent in the UK. JLL expected that there will be particular interest in co-living and, due to the scale of growth in the elderly population – and their needs, the interest in managed purpose-built facilities for retirement will intensify. 

Chris Ireland, JLL UK CEO, concluded: “The UK market is likely to recover somewhat in the first half of 2020, following a tumultuous 2019 which gave the country a lot of political uncertainty. We can expect investors to become more confident following the Conservative victory and the likely passing of Boris Johnson’s Brexit deal. However, caution is likely to grow as the year progresses and the new ‘cliff edge’ of a December 2020 deal becomes visible. 

“Businesses will continue to become more focused on the climate emergency and tackling, while a new emphasis on social value and purpose will come to the forefront in 2020.”

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