Economy
JLL expects base rates to stay constant at a record low of 0.5% until at least the second half of the year, with inflation holding steady below 2% as oil prices decline. Long-supressed wage growth and boosts to disposable incomes are set to benefit the retail market in particular.
Politics
The agent says the May 2015 election is “the hardest to call in living memory”, and warns that uncertainty could lead to a pause in the market. The likely minority government could lead to a stasis in policy making, benefiting the property market by blocking moves to stymie foreign investment or impose tax rises. A Conservative majority, and the associated promise of an EU referendum in 2017, could create enough uncertainty to affect the market, particularly in London. Meanwhile, a Labour government could see increased taxation and regulation.
Sectors
Greater London is billed to outperform prime central for the first time in the residential market, hand-in-hand with thriving regional hubs like Manchester. In the industrial market, “critically low levels” of stock across the UK will force development activity – so far limited to the Midlands and South East – to spread across the country. Land and rent values will increase above inflation across the size spectrum. The retail market, meanwhile, is likely to see a fightback by the big four supermarkets against the discounters, as they use space
in new ways.
Supply crunch
Tight supply is due to drive office investment to record levels in 2015, though the rate of increase will slow as a lack of supply and electoral uncertainty hit investor confidence. Occupiers are expected to migrate to emerging London markets in Battersea, Stratford and White City, with a dearth of speculative development largely ruling out relocation to core regional markets.
Occupiers
To date, demand for new space has been driven by lease events or consolidations, rather than recruitment and expansion. That is set to change in 2015, as firms that have filled their excess space seek expansion offices through rapid deals. A trend towards higher density will persist but so too will rental growth.
Housing
London could fall on its own sword in 2015, with residential shortages driving up costs and causing businesses to locate elsewhere. Meanwhile, improved regional infrastructure coupled with increasing overseas demand for London property could drive UK institutions to become net sellers in the capital. Rises in construction costs above the national average are expected to further limit relocation options in London.
