• Industrial – planning restrictions to put pressure on speculative development
“There will be less speculative development in the coming year, especially in prime locations due to the scarcity of suitable sites and the increasing challenges in securing planning permission,” said Len Rosso
, Head of Industrial and Logistics at Colliers International.
• London offices – long leases to be confined to large lot sizes
“In the face of growing serviced office provision, 2017 saw average lease lengths in London shorten to just five years and the coming year is likely to see the long lease in London confined to larger lot sizes and prestige developments - just as leases are expected to go on to the balance sheet.
“WeWork’s exposure to London is likely to exceed 3.5 million square foot in 2018, putting increasing pressure on landlords, particularly those with assets around the 5,000 sq ft mark, to offer a more flexible, hybrid product. Such pressures could also reach landlords in the region as the company further expands outside of the capital,” predicts Guy Grantham
, director, research and forecasting at Colliers International.
• City – Occupiers will have to act fast for the best space
“If occupiers want a slice of the best space in the City in 2018, they will have to act fast. With serviced office operators hoovering up space, I predict that this will be the year of the pre-let with many occupiers looking for accommodation finding themselves having to act earlier than they have done so previously. That said, there will be some good deals available in the lower priced markets; those that are second hand or have no particular point of difference. I’m anticipating a greater amount of lower priced stock to come into the City market as occupiers continue to strategically consolidate and await clarity on the Brexit negotiations. When looking at London as a whole, businesses will not be able to ignore the value the City provides for best in class buildings, a vast array of amenity and world class transport infrastructure,” predicts James Walker, Head of City Agency & Occupier Advisory at Colliers International.
• Leisure – turnover leases to become more prevalent in the regions
Ross Kirton, Head of UK Leisure Agency at Colliers International commented: “The cooling of the casual dining sector could potentially impact the development pipeline, particularly in secondary locations.”
“The casual dining sector is likely to undergo further structural change at group level with further casualties; those that succeed will be due to them placing more emphasis on service and experience. This is likely to lead to a broad stabilisation of rents and we anticipate the performance gap between average and prime locations to widen, with the best prime pitches still to enjoy rental growth.”
Kirton adds: “In addition, as the home delivery service model continues to prosper and expands nationally, we believe there is likely to be an emergence of delivery only restaurants taking secondary space on flexible terms to grow the profile of a brand.
“We expect experience-led activities to take centre stage in 2018 and this sector will continue to grow in major urban locations. In addition, Street Food and Food Halls will become an integral components of the leisure mix in mixed-use developments.”
“Similarly, whilst the branded restaurant sector looks set for further change, the high street bar market (which played second fiddle to casual dining) remains buoyant with a number of established and emerging concepts rivalling for further representation.
“We predict that turnover leases will become more prevalent in the regions. As occupiers seek to reduce exposure to fixed costs, we expect an increase in tenants taking on units on a turnover rent basis in order to share the risk.”
• National Capital Markets – reinvigorated activity in the regions
“The regions have witnessed reinvigorated activity in recent months, suggesting interest for opportunities outside of the capital in 2018 will strengthen further. We saw office trading volumes outside of London reach £3 billion in Q3 2017, which was the highest quarterly total ever recorded, suggesting that regional office markets are becoming increasingly attractive to investors looking for value in a tightening market. Whilst Manchester and Birmingham have been long term investor favourites, Leeds, Reading and Edinburgh are very well placed to show strong growth and to narrow the gap on other more core investment locations that have already seen significant investor requirements and market activity. explains John Knowles, head of national capital markets at Colliers International.
“Whilst the terms of the UK’s exit from the EU are thrashed out in Westminster and Brussels, investors face many unknowns, particularly in the financial sector, which is driving a hunt for assets that are less vulnerable to disruptive political forces. In the face of this uncertainty, punishing new business rates and ongoing high occupational costs in the capital, the regional cities are standing out as very attractive places to invest over the next 12 months,” concludes Knowles.
• Residential – Things could be a lot worse
Ashley Osborne, head of UK residential said: “A snap general election, the first interest rate rise in a decade, continuing Brexit negotiations, and the effects of a raft of new rules introduced over the past couple of years continuing to take their toll on house prices, have meant that all in all 2017 has been a difficult year for the UK housing market.
“Looking to 2018, what’s in store? There is no doubt that UK house price growth will slow in 2018, with our prediction being a growth rate of 1.5%, but it’s not all bad news. A welcome change to stamp duty with the news first-time buyers would be exempt for properties up to a value of £300,000, applicable as long as they were purchasing a home worth less than £500,000 will no doubt help ease this group of buyers path to home ownership.
“Increased funding for government initiatives such as Help to Buy will also give a boost to properties priced at £600,000 and below. The rise in interest rates may seem significant simply because there hasn’t been one for such a long period, but in actual fact mortgage rates are still historically low. Lastly, the fundamental shortage of housing will continue to underpin the market for the next year, regardless of the outcome of Brexit negotiations as the government is notably short of its target to build 300,000 new homes a year.
“All in all, while it’s unlikely 2018 is going to be a standout year for the housing market, given the political and economic uncertainties the UK is facing, things could be a lot worse.”
• Retail – more consolidation, ‘pure-plays’ to take more physical stores and the arrival of Crossrail redirecting shopper
On consolidation and restructuring in the market place:
Mark Phillipson, Head of UK Retail Group at Colliers International commented: “Throughout 2017, we have witnessed numerous large-scale acquisitions across the retail sector from Tesco-Booker and Amazon-Wholefoods through to the Hammerson-Intu and Westfield-Unibail-Rodamco deals and the repercussions will continue to take effect and crystalize in 2018 onwards. We anticipate more consolidation of physical stores across the marketplace and retailers looking to the future of their business should see the advantages of this, particularly when considering their cost base and financial strategy moving forward.
“In addition, we predict more CVA’s and restructuring is on the cards for occupiers, particularly department stores which are facing current challenges and risks, especially since online retail shopping verged into the mainstream, which has subsequently had a direct negative impact on sales and footfall.
“We also predict there will be more pressure on pricing in the secondary shopping centre investment market leading to further sales.”
On Black Friday:
Mark Phillipson, Head of UK Retail Group at Colliers International added: “Black Friday 2017’s poorer trading results show that the day isn’t resistant to wider economic conditions including inflation and interest rates. As the event has evolved over the years, there has also been a degree of skepticism as to whether the deals are actually any better than in standard sale periods, or whether the offers are genuine. So in reality, it would seem that Black Friday has just turned into a marketing event craze. To draw any final conclusions, we will need to wait and see what figures the retailers post after the January sales. However, when analyzing the future prospects of the event (2018 and onwards), retailers may need to focus more on online discounts to keep ahead of the curve.”
Paul Souber, Co-Head EMEA Retail at Colliers commented: “With the rate of web sales forecast to level out over the next four years, many e-retailers have identified ‘showrooms’ as one of the remedies to a decline in profits.
“Increasingly ‘Showrooms’ in physical shopping environments which both generate online sales, raise awareness of their company, promote brand loyalty and offer the customer an opportunity to see, touch and feel the products. The trend is also driven by cost considerations: it’s not uncommon for 40 per cent of online fashion orders to be returned by the customer without making a purchase. This is imposing a huge logistical and cost burden on the online brands.
“The trend for ‘pure-plays’ to take physical stores will undoubtedly accelerate as increased online competition and lower rates of sales growth requires them to find a competitive edge.”
Paul Souber, Head of Central London Retail says: “When the Elizabeth Line opens at Bond St station in December 2018, passenger numbers are predicted to grow to over 150,000 each day.
“The new Crossrail entrances and ticket halls will re-route the footfall patterns around the northern part of Mayfair. We see Davies Street repositioning itself to become more retail focussed as a result of the enhanced footfall generated by the station entrance located on the street.
“Crossrail will funnel huge visitor numbers onto South Molton Street one of London's few pedestrianised shopping streets, where a retail transformation is already underway and we anticipate a huge increase of people using Weighhouse Street to link through to the retail pitches of Duke Street and North Audley Street.
“Following the completion of Crossrail and the associated public realm improvements, the area will be completely transformed. We are already observing retail brands seeking to capitalise on opportunities around these streets. We will also witness similar patterns around Hanover Square and the Northern section of Bond Street where another entrance and Crossrail ticket hall will be located.”
• Hotels - Brexit uncertainties having little impact
“Brexit concerns has done little, so far, to negatively affect the flow of hotel transactional activity throughout the UK. There continues to be considerable demand from both domestic and overseas buyers, as hotels continue to be an attractive and popular investment opportunity.
“We will also continue to witness an emerging pattern of increasing demand for U.K. provincial hotel opportunities from a diverse buyer set, who are seeking global branded stock. Buyers in 2018 will include international investors, who are attracted by weaker sterling; private purchasers, enticed by the benefits of a lifestyle opportunity; to corporate investors who are on the lookout for favourable returns and real estate alternatives. As long as the ensuing Brexit negotiations do not impact negatively on consumer confidence, and consequently the UK economy, we anticipate no material changes to the level of UK hotel transactional activity during 2018,” said Julian Troup, head of UK hotels agency at Colliers International.