Posted on 29/01/2019 15:09:41

Land Club Property Outlook 2019


2019 will be yet another crucial year for the UK. Ongoing Brexit uncertainty dominates the economic and political forecasts and with no concrete plan in place, the UK enters 2019 with the unknown potentially on the horizon. The domination of Brexit news in the media means other pressing issues such as the UKs lack of housing are not as publicised, yet it is an ongoing concern for many.

Brexit

The biggest talking point in the UK right now is of course Brexit. And with the UKs current date of departure from the European Union being the 29th March 2019, not much time remains to sort out the details of the departure. According to CBRE, there is a 40% chance of a ‘no deal’ Brexit which would create significant risk for property markets.

Brexit uncertainty will continue to dampen confidence and growth, and currency-induced inflation has not yet fully dissipated, slowing consumer spending. But the weak pound has attracted international real estate investors and tourists to the UK and boosted domestic exports, increasing demand for the offices, prime retail, industrials and hotels sectors.

At this moment in time Brexit brings a lot of “ifs, and, or, buts” with no one truly knowing what is going to happen. We are hopeful that the UK will reach an agreement with the EU and a smooth transition from the Union is possible.

The Economy

Despite Brexit uncertainty, the UK economy has remained resilient. The UK has had nine continuous years of economic expansion. Output in services, manufacturing and construction has risen despite heightened uncertainty. Assuming a benign conclusion to Brexit negotiations, CBRE predict GDP growth of 1.3% in 2018 and 1.5% in 2019. Rising real wages will be positive for households but weaker job growth and weaker consumer credit growth might constrain consumption.

Higher government spending and short-term tax cuts announced in the Budget will provide some boost to growth in 2019. PwC share CBREs view that UK economic growth will be modest. Predicting a GDP growth of 1.3% in 2018 and 1.6% in 2019.

UK Housing Market

The UK housing market is unlikely to see much change in 2019 with a continuation of weakening sales activity, according to the RICS UK Residential Housing Forecast 2019. RICS predicts that overall sales volume will weaken to around 5% in 2019.

Savills 5-year forecast for the UK housing market puts the UK as a whole at 14.8% but with just a 1.5% growth in 2019. Their predictions for 2019 see the Midlands and North West as the highest performers in 2019, all with a growth prediction of 3%.

Regeneration and Development

According to Savills, there is reason for optimism in the redevelopment sector with development land in demand. The sweet spot in the development-land market appears to be for smaller sites in local authorities with high housing targets who may struggle to meet the housing delivery test. Demand will come from better-financed small and medium sized house builders and Housing Associations.

There seems to be a boost for the build to rent market as by the end of Q3 2018, there were 15 institutional build to rent schemes with plans to deliver more than 1,000 homes each. Savills have now stated that they expect large-scale investors who are keen to exploit operational economies of scale to deliver larger, but increasingly diversified, offerings to the private rental market.

There is also pressure on local authorities to deliver on the planning front. Measures to standardise the calculation of housing delivery targets and hold local authorities to account for the homes built in their area through the planning system are likely to gradually feed through into more planning consents in areas of high housing need.

The year ahead…

2019 will certainly be defined by Brexit and ultimately whatever is agreed, or not agreed with the EU will define how Britain moves forward. Despite the ongoing media coverage and largely negative news coming out of the UKs withdrawal from the EU, we believe that an agreement can be reached, democracy will indeed prevail, and a successful Brexit becomes a reality. This scenario would see a wrath of opportunity for the UK to work with the global powerhouse America, as well as emerging markets in the far east without the constraints of the European Union which in turn would see an economic upturn in the United Kingdom.

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CBRE. UK Real Estate Market Outlook 2019.

Savills. UK Cross Sector Outlook