2017 was marked as year of political upheaval and uncertainty. Brexit turmoil, an ever-rumbling housing crisis and stamp duty hikes met with rising rents and a weakened pound attracting interest from abroad.
At the start of the year, Colliers International chief executive Tony Horrell prophesied “with uncertainty comes opportunity”, but across the industry there was a sense of consternation. On the whole, the industry outperformed expectations. Here, EG revisits expert predictions set a year ago to see who got it right and who was wide of the mark.
1Investment volumes were over £60bn, against JLL’s expected £45bn
JLL predicted investment in 2017 to match the 2016 figure of £45bn in a post-referendum downturn. JLL’s prediction sat below Colliers’ £50bn but volumes actually exceeded £60bn.
Alistair Meadows, head of UK capital markets, JLL, said: “The UK economy and particularly London has remained much more resilient than many expected at the time of Brexit.”
He explained that, as predicted, currency depreciation drove oversea investors and that central London’s office market has become more attractive than other gateway cities.
“Essentially the economic fundamentals and unique characteristics of our market, for example longer leases and favourable terms, have held strong appeal for a lot of funds from around the world that have been keen to access UK opportunities.”
2CBRE predicted returns of 1.1% against 9.4% year-to-date
CBRE’s returns forecast of 1.1% was a particularly conservative bet alongside IPF’s expected 3.2%, JLL’s 4% and JP Morgan’s 5.25%. In November, the IPD UK Property Index recorded year-to-date figures of 9.4%, towering over CBRE’s initial forecast.
Miles Gibson, head of UK research, said the underestimate was a result of lack of data on the impact of major political events leading to overly conservative predictions.
He said: “Like everyone else, we were quite gloomy about the state of the economy in the few months after the referendum.”
Bond markets and capital values did not drop as expected and a surge in the industrial market, where returns hit and eye-watering 18%, boosted the average.
He added: “On closer inspection we think property is likely to be rather less embattled than many might think.
“As demand weakens, supply shortages and risk premiums, alongside the structural attractiveness in the UK all add up to an ability to continue performing under severe external pressure”.
3Colliers correctly predicted prime residential prices to fall 3-5%
A downward trend in London prime residential prices was predicted to continue, with Colliers expecting a further decline of 3-5%. At the end of September, Savills reported London prime homes dropping 4% over the year.
Ashley Osborne, head of UK residential at Colliers International, said: “A snap General Election, the first interest rates rise in a decade, continuing Brexit negotiations and the effects of a raft of new rules introduced of 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 housing market.”
4JLL nailed global alternatives outperforming commercial
Rapid growth in alternative sectors was expected to sustain through 2017, with JLL predicting increased returns outperforming traditional commercial investments.
James Kingdom, JLL’s associate director of research, said: “If you look at how the growing number of REITs that specialise in alternatives have performed over the course of the past 12 months then, by and large, everyone is performing incredibly strongly.”
JLL flagged student housing as the leading alternative in 2016 and pinned this sub-sector to hit £3bn in 2017.
With iQ’s £870m purchase of LetterOne’s student accommodation portfolio as the industry was headed home for Christmas the year has actually seen almost £5bn of deals.
5Scotland’s ‘subdued’ market gets surprise surge
Rettie & Co forecast a subdued residential market in Scotland in 2017 due to Brexit, geopolitics and domestic factors including tenancy reform and land and buildings transaction tax.
However, with investment yields in major cities holding at around 6% John Boyle, director of research and strategy, reported “pleasantly surprising” results.
At the end of the year, Boyle said: “I think the market remains quite delicate though. However, given the headwinds, 2017 was not too shabby.”
Rettie & Co’s autumn outlook reported a year-on-year increase in house prices up 3.5%, with rents and investment transaction levels also up, and Boyle predicted “modest improvements” to continue through 2018.