Property – what’s the outlook for 2018?
There’s little doubt we’re living in interesting times. As many suspected would happen back in June 2016, Brexit has become, and is likely to remain, a major influencing factor in many parts of the UK economy for some years to come. Here, we take a look at what could be in store for the residential and commercial property markets in 2018.
UK house prices
Residential property is particularly high profile as the government vows to take on the increasingly-urgent task of addressing the UK’s chronic housing shortage. Add to that the prospect of gently-rising interest rates, newly-introduced mortgage constraints, and the current shortage of properties for sale, and you have a powerful set of drivers that each look set to influence the property sector over the months to come.
Whilst the government recently announced its ambition to build 300,000 homes a year, and introduced other measures to speed up the pace of housing starts, these measures are unlikely to produce any major effects until the mid-2020s. This is likely to mean that in the short term prices are likely to remain high due to shortage of supply.
Estate agents Savills forecast that national house price growth will slow by half, growing by 14.2 per cent between 2018 and 2022, a marked reduction in the 28 per cent growth seen in the last five years. They acknowledge that the uncertainty surrounding Brexit is likely to dampen demand in some quarters. This is likely to be particularly true in the London market, which has traditionally been more reliant on international buyers. However, if the UK economy and employment levels remain robust, the simple fact is that people need to live somewhere, and will continue to buy and sell properties. So while property price growth may slow, it will continue, not least because there are likely to be insufficient properties coming on to the market in the short term to meet demand.
Many of the main agents point to increased headwinds on the horizon for 2018, but also highlight a number of optimistic signs too. Knight Frank believes that whilst industrial property used to be the obvious sector for investors seeking income, lower industrial yields mean income returns are likely to be higher from retail property, such as warehouses and supermarkets. They also expect the UK office sector to remain buoyant in the coming year, and for more overseas investors to enter the UK industrial market.
Currently, just 6 per cent of the UK’s industrial stock is in foreign ownership, less than any of the other major property types, but this they report is changing. Interest in prime London assets has been particularly strong from Hong Kong and China, with investors no doubt looking to reap the reward of lower exchange rates.
Sectors in the spotlight
Research from JLL shows that domestic and international investors are increasingly looking at sectors that offer value and resilient income streams, such as retirement living, healthcare, student housing and the increasingly-important build-to-rent market. JLL believes the fact that, despite the obvious uncertainties in the UK market, long-term institutional global capital has continued to invest bodes well for the future.
Regions showing steady growth
Surveyors Bradley Hall report that the North East is currently proving to be a particularly attractive market both to UK and overseas investors, thanks to good returns and a steadily-rising market. Newcastle is amongst many northern cities being tipped as a hot spot for 2018. Overseas investors are likely to be attracted by the improved exchange rate, the higher yields available on provincial investments, lower land prices and the cheaper cost of labour.
Clearly, there is currently much uncertainty about what the future holds for property in 2018; however, there is arguably more optimism about than there was when the result of the Referendum was announced in June 2016.