CBRE UK Real Estate Market Outlook for 2018 In this report we look at how economic, political, and technological forces will affect property markets in 2018 and beyond. This report is the most comprehensive sector-by-sector outlook in the industry, from flexible office space to e-commerce, and from data centres to built-to-rent. There’s a comprehensive supplement on Brexit, plus a special feature on ‘proptech’. Key Takeaways: • A benign global economic environment, supported by a European recovery, though the UK is starting to fall behind. • Subdued consumer spending and business investment arising from a weak currency, inflation and Brexit uncertainty. • Risks of an overshoot in US interest rates could dampen UK growth in 2019 or 2020, though increasing clarity over Brexit will help the UK bounce back. • Rebounding strongly from the uncertainty in the immediate aftermath of the EU referendum, the UK property investment market has seen a surprise surge in transaction volumes, particularly from overseas investors. Investment volumes are likely to remain robust at around £60bn for 2018 as a whole. • We expect substantial political noise and turbulence arising from Brexit issues throughout 2018. • Although agreement on Brexit withdrawal issues has taken time to secure, these issues are not likely to have significant impact on real estate. But attention will now progress to the much more important question of future trade and migration arrangements. • EU trade access is likely to be worse than the UK has now (perhaps somewhere between the Canadian and Swiss deals with the EU), though only to the extent that migration controls are tighter than they are now. • Our sectoral picks include industrial and logistics property, especially in urban areas and the so-called ‘beds sectors’ (residential, student accommodation, hotels and healthcare).These sectors either exhibit non-cyclical characteristics, have very significant demand and supply mismatches, or (in the case of hotels) will benefit disproportionately from the weaker pound. Please feel free to contact us if you would like to discuss any aspect of the report.
UK property delivers strong returns of 11.8% in 2017 December 2017 were 1.4% across UK commercial property. The strong finish to the year boosted annual total returns to 11.8% at the All Property level. Industrials outperformed the other main sectors with returns of 21.0% in 2017.
Logistics Market Snapshot All data corresponds to UK warehouses of institutional grade in excess of 100,000 sq ft. An overview of key supply, take up, land availability and construction for the UK logistics market.
The overall European hotel investment volume was up +33% y/y for Q3 2017. This contributed to a +16% y/y increase YTD 2017, with the deal volume topping €14 billion. The size of the Spanish hotel investment market more than doubled in the first three quarters of 2017, with transaction volumes increasing by +112% y/y. The United Kingdom has seen the highest actual investment volume at almost €5 billion so far in 2017. Hotel yields for key German cities continued to decrease, highlighting the strong investment appetite in the market.
The residential investment sector is continuing its trend of behaving like the commercial real estate market which is typically characterised by deals stacked up at the year end. With only £300 million worth of capital committed since our last yield benchmarks were issued in early September it feels like a poor return on the £1.5 billion - £2 billion worth of assets that were under offer at that time. However, there remains a significant number of deals in hand and with a fair wind the volume will easily exceed 2016’s total of £1.8 billion. Demand for up and let stock remains strong with good levels of bids for a number of assets recently marketed by CBRE. At the prime end in London the market is very sensitive to economic concerns with flatter rental growth prospects.