Jones Lang LaSalle lowers 2012 forecasts for UK property
Jones Lang LaSalle has revised down its forecasts for UK property for 2012, with All Property returns now at 2.0% compared with a historic average of 9.0%, as a sluggish economic recovery continues to take its toll on UK commercial property markets.
The UK economy is currently expected to grow by less than 0.5% this year, and the continued lack of debt finance and ongoing uncertainty in the eurozone have added to investor caution, JLL notes.
The firm expects a mixed performance across sectors, with high-street retail property forecast to be the weakest with negative total returns of 3.3%, while office space in the City of London and offices in the West End are set to outperform, with total returns of 5.8% and 4.5% respectively. Returns in the industrial sector are forecast at 2.6% for the year, with standard industrial units outperforming distribution warehousing.
Andrew Burrell, head of forecasting at Jones Lang LaSalle, says All Property rental levels are now forecast to fall by 0.4% in 2012; the firm’s estimate of rental growth for the next five years has also been cut, and is now 1.4% on average per year over this period. Rental growth for office space overall is expected to outpace that of the industrial and retail sectors.
Within offices, rental growth is forecast to be led by West End office space, at an average 4.9% per year over the next five years, thanks to continued supply constraints and strong demand from occupiers and investors. Elsewhere in the UK, weak demand for secondary office space is expected to lead to continued falls in rental levels this year.
Rents for retail property are expected to lag behind other sectors, with further declines expected this year before a modest recovery from 2013 onwards, according to Mark Jones, director in JLL’s strategic asset management team. “Retail warehouses are anticipated to perform better than standard shops and shopping centres, with rental growth averaging 2.7% per annum over the five-year period,” he adds. But the lack of debt finance and weak tenant demand are expected to put more downward pressure on rents, apart from retail warehousing and Central London retail properties.
Jones Lang LaSalle expects All Property capital values to fall by 3.7% this year, as a result of declining rents and rising yields. The firm expects equivalent yields to shift further outwards in 2012, then remaining broadly stable next year before drifting upwards again to reflect an expected rise in interest rates and bond rates.
