018

E X
IN D
 KEY THEMES
FOR 2018
The outcome of the Brexit negotiations remains
highly uncertain and is expected to continue to delay
some non-time critical property decisions until the
BEYOND BREXIT
PROPTECH 4.0
March 2019 deadline. Despite this, occupiers continue
to focus on the longer-term and businesses are
committed to pressing ahead and seek to optimise
their existing footprints, increase their productivity and
competitiveness. It was reassuring that the Chancellor
in the Autumn Budget confirmed further commitment
to the development of the industrial strategy for UK
plc and announced further support for key hubs of UK
innovation, notably the tech and life sciences sectors.
While the downward revisions of economic growth
prospects suggest that the UK is still vulnerable, the
UK remains an attractive environment for
doing business.
Household consumption growth is likely to remain
subdued with inflation remaining above target levels.
The rapid shift in retail demand to online will continue
to bolster the UK e-commerce market, bolstering
demand for land close to urban conurbations and
adding to the attractiveness of the industrial and
logistics sectors for investors.
Abolishing stamp duty under £300,000 for first time
buyers on purchases up to £500,000 will hopefully
FINDING THE BALANCE
SUPPORT OR NO SUPPORT?
help to boost the market heading into 2018. This will
lead to increased demand within this price bracket,
which can only be a positive thing, but increased
demand inevitably leads to price growth. ‘Second-
steppers’ and those looking to move into larger family
homes are still finding themselves squeezed. A rise in
the housing supply generally will help alleviate this,
provided the appropriate quality homes are built in the
correct areas.
Last year there was a record 217,000 new build units
added to the housing supply. With the Chancellor
aiming for 300,000 new homes per annum (albeit not
until the 2020s) it is hoped that the housebuilders will
continue to boost the supply of new homes that this
country requires. It will only be when households are
faced with a supply ‘choice’ that we will begin to see
more equilibrium in the housing market.
Demand for real estate continues to change as the way
we work, live and shop evolves and businesses seek
to break down barriers between people, workplaces
and technology. Real estate is increasingly viewed
as a service across the spectrum of sectors and an
opportunity to reduce operating costs and further
enhance efficiency and consequently productivity to
gain the competitive advantage.
Implementation of advanced software and robotic
devices and the advancements in autonomous vehicles
has and will continue to change the nature of occupier
demand. There remains the ongoing need for investors
and developers to challenge and innovate beyond the
typical real estate boundary.
As to whether the adoption rate has been slower than
some might have hoped, given the property sector’s
lingering fear of the “proptech” world, is debatable.
Either way, the more automated business processes
become, the more data will be made available and that
will only speed up change.
Much of the future success of the rural sector post-
Brexit will centre around the new UK Agriculture Bill,
due for release midway through 2018. As indicated by
Environment Secretary Michael Gove, the document
is expected to “consult with all those who have an
interest in the success of the UK food and farming
industry” and is likely to include segments on
environmental enhancement, productivity, animal
welfare and support policies.
Support payments in particular will continue to be
a topic of interest. Gove has recognised that the
current system is “inefficient, ineffective, inequitable
and environmentally harmful” thus the new Bill is an
opportunity to produce a sustainable support system.
The first steps for this have already been
acknowledged by Gove at the Oxford Farming
Conference on 4 January 2018. He indicated that
the amount of land owned will no longer dictate
subsidy amounts and the government is dedicated to
designing a scheme that will support environmental
benefits, including planting woodland, providing new
habitats for wildlife and returning cultivated land to
more natural states.
2018 TOTAL RETURN
FORECASTS

RESIDENTIAL OFFICE RURAL

6.8% 4.3% 2.0%

In prime London, transaction volumes over
the last 12 months have been well below
their long-run average although this has
been partly compensated by other regional
hot spots across the UK where activity has
held steady. Meanwhile capital values have
continued a sustainable level of growth
through the year particularly in locations
outside of the Capital. However, even
within London capital values have grown
and we certainly do not expect to see any
appreciable declines in 2018. Our index
therefore suggests residential total returns
of 6.8% in 2018, largely being driven by a
continued increase in capital values although
rental growth of 4.0% can also be expected.
As stamp duty and moving costs continue
to deter some potential purchasers from
making any big moves, renting will be seen
as a ‘stop gap’ and become increasingly
popular. Meanwhile, investors looking for
stronger rental yields may begin to move
outside the well-supplied areas of London
Downward pressure on rental growth
for offices in central London during 2018
is anticipated to drag down the overall
average forecast for the UK office sector.
Businesses will continue to face further
challenges from the uncertainties of Brexit
with the potential to dampen occupier
and investor sentiment. However improved
prospects within the strongest UK regional
markets and renowned UK industry clusters
exist. Overall, the office sector is anticipated
to record more modest returns than that
witnessed during 2017 with a 4.3% total
returns forecast for 2018.
ALL PROPERTY
The land market remained active in 2017,
despite uncertainties about the future
support system in the agricultural sector.
It has however impacted on values across
the country with average prices per acre
reducing by close to 10% over the last
12 months. There continues to be a wide
variation depending on the quality, location
and ultimately the opportunity to generate
capital growth and income.
Over the next 12 months, the expectation
is for a slight uptick in land values across
all areas bar the M25 region, which again
will keep returns subdued. Consequently,
total returns for rural property are expected
to reach 2.0% at the end of 2018. While
negotiations for Brexit are ongoing, the
outlook for the sector is likely to remain
uncertain, however the release of the UK’s
Agricultural Bill in 2018 is an opportunity to
provide some clarity on key issues, restoring
the confidence of existing and future rural

resulting in areas across the South East

or outside the M25 witnessing some small 4.6% property owners.

increases in the supply of new private

rental units.

Figure 1 Source: Carter Jonas Figure 2 Source: Carter Jonas

Total Returns by Sector All Property: Total Return

18%
5yr avg to 2017 16%
18%
2018 Forecast
16% 14%
14% 12%
12%
10%
10%
8%
8%
6%
6%
4%
4%

2% 2%

0% 0%
s

al

ty

11

12

13

14

15

16

17

re 018
st
ai

ra

tia
ce

ri

20
er

ca
t

20
20

20

20

20
20
Ru
st

Re

en
ffi

Fo 2
p
du
O

ro
id
s
In

lP
Re

Al

INDUSTRIAL RETAIL

6.2%
The higher yielding industrial & logistics
sector is expected to again outperform
other commercial markets in 2018. Total
returns look set to reach 6.2% with the
sector poised for further positive rental and
capital growth, reflective of the ongoing
shortage in supply of land for fulfilment
centres close to urban populations and high
demand, underpinned by the further growth
anticipated within the e-commerce market.
3.8%
There remains a challenging outlook
for high street retailers in the UK with
consumers facing a squeeze on disposable
incomes, inflation exceeding growth in
average earnings and an ongoing structural
shift in shopper behaviour to online
channels. While prime retail assets may
witness more stable performance levels, the
secondary retail market will suffer further.
We are anticipating returns of 3.8% in 2018
as the sector continues to underperform.
 38 OFFICES ACROSS
THE COUNTRY, INCLUDING
12 IN CENTRAL LONDON

Bangor Marlborough
Basingstoke Newbury
Bath Northampton
Birmingham Oxford
Boroughbridge Peterborough
LONDON
OFFICES Cambridge South Shrewsbury
Cambridge North Suffolk
Cambridge Central Taunton
Edinburgh Truro
Harrogate Winchester
Kendal York
Leeds

National HQ One Chapel Place Knightsbridge & Chelsea

Barnes
Barnes Village
Fulham Bishop’s Park
Fulham Parsons Green
Holland Park & Notting Hill
Hyde Park & Bayswater
Marylebone & Regent’s Park
Mayfair & St James’s
S. Kensington & Earl’s Court
Wandsworth
Waterloo

THE TAILORED SERVICE AND

SIMPLY BETTER ADVICE WE
OFFER OUR CLIENTS BUILDS
LASTING, INTELLIGENT AND
Scott Harkness James Bainbridge TRUSTING PARTNERSHIPS.
Head of Commercial Head of Planning &
020 7518 3236 Development
scott.harkness 01865 404437 Report compiled by:
@carterjonas.co.uk james.bainbridge
@carterjonas.co.uk Catherine Penman
Head of Research
01604 608203
catherine.penman@carterjonas.co.uk

Leslie Schroeder
Senior Research Analyst
020 7529 1538
leslie.schroeder@carterjonas.co.uk

Rory O’Neill Tim Jones Heena Kerai

Head of Residential Head of Rural Research Analyst
020 7518 3216 01223 346609 020 7518 3270
rory.o’neill tim.jones heena.kerai@carterjonas.co.uk
@carterjonas.co.uk @carterjonas.co.uk
Andrew Heard
Research Analyst
020 7518 3200 020 7518 3301
One Chapel Place, London W1G 0BG andrew.heard@carterjonas.co.uk
chapelplace@carterjonas.co.uk
carterjonas.co.uk

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© Carter Jonas 2018. The information given in this publication is believed to be correct at
the time of going to press. We do not however accept any liability for any decisions taken
following this report. We recommend that professional advice is taken.