The economy continues to strengthen, the regional recovery is accelerating and the UK continues to make a persuasive investment case on the world stage. 2014’s prospects are looking good. Well, mostly good.
Even the not notoriously upbeat Roger Bootle’s Capital Economics finished 2013 with a smile: “Rental growth should accelerate next year as a more broad-based occupier recovery commences. Indeed, there are already signs that positive rental growth is now spreading beyond London, to regional office and industrial markets.”
The first economic data of the year, the bellwether Markit/CIPS Manufacturing Purchasing Managers’ Index, justified the growing optimism. It showed that strong growth in UK manufacturing continued right up until the end of 2013.
But there are clouds too. Jones Lang LaSalle is not alone in anticipating that the private rented sector will be 2014’s fastest-growing alternatives sector. But too large a part of residential’s investment case is down to the country’s woeful failure to build enough homes.
And while city regions around the UK have cause for optimism in 2014, the fact that they can’t match London’s growth means the North-South divide will continue to widen. Yes, Chinese investment is reaching Manchester, but it’s no match for the near £8bn of overseas investment into central London offices alone last year.
But the real travails in 2014 will, once again, be on the high street.
Traditional long leases signed by retailers in the 1980s and 1990s are due to come to an end within the next two years – 43% of shopping centre retail leases and 37% of all high street shop leases, according to IPD. “Stubbornly high” high street vacancy rates of 14% nationally could push the proportion of vacant units in some parts of the country to 50% or 60%.
John Lewis may have outperformed at Christmas – it racked up £35m of sales on 27 December alone and is planning to almost double in size over the next decade – but a new year profit warning from Debenhams highlighted how fragile consumer confidence remains. And while Deloitte reported this week that the number of retail administrations fell in 2013, in the last quarter they were up 11% on the fourth quarter of 2012.
Given that more businesses go bust as the economy recovers, that is a statistic that will get worse before it gets better.
There is certainly firm grounds for optimism in 2014, but no room for complacency.
¦ It wouldn’t be a new year if there wasn’t talk of consolidation among REITs and agencies.
More interesting perhaps is the jostling among the leading agents as they seek to dominate, to carve out a niche or, in some cases, to simply survive.
Last January, Guy Grainger, the then newly installed chief executive of Jones Lang LaSalle, told me: “I don’t think it’s necessary to be in Mayfair any more as a property services company.” He has proved as good as his word. By the summer the firm will have left Hanover Square to create the largest JLL office in the world in Warwick Street in Soho. It may only be a third of a mile away, but it continues the morphing of Grainger-era JLL into a firm that presents an altogether more dynamic face.
At Cushman & Wakefield, new president and chief executive Edward Forst starts work on Monday and it will be fascinating to see what changes the former Goldman Sachs executive makes. Chairman Carlo Barel di Sant’Albano was excited about the appointment before Christmas. Rest assured, there will be no vampire squid jokes here.
Days later GVA confirmed it would pursue an IPO or merger – with a decision likely to be confirmed before MIPIM. An international partner is perhaps the ideal. Meanwhile this week Colliers International finalised a new offices line-up in the North West. Peter Gallagher is to join from p3 Property Consultants. With heavyweights Mike Hawkins and Nick Nelson already on board, it is a formidable line up in key market.
It’s still only week one. Happy new year. And fasten your seatbelt.
Damian.Wild@estatesgazette.com
