CBRE’s six-month-old prediction that the UK property market would recover faster than it did in June was incorrect, CBRE said today when it released its revised mid-year forecasts for 2015.
CBRE anticipates that the economy will strengthen and CBRE will expect strong GDP growth in Q2 as well as above-average growth rates throughout the year (7.7% overall for 2021), with UK GDP returning back to pre-pandemic levels six months earlier than originally predicted.
While not all sectors are yet in full health, the recovery has been led by the logistics and multi-family residential sectors. They have already reached record heights. Already in 2021, the vacancy rate has fallen to below 4% for logistics properties, and XXL units, which are larger than 500,000 square feet, are very scarce. CBRE predicts that logistics investment and leasing will be busier than in the first half of 2019, despite the limited supply.
The volume of logistics investment soared 122% in Q1 2021, compared to Q1 2020. The firm predicts that online sales growth will require an additional 59m sq. ft of dedicated logistics space in the UK from now through 2025.
CBRE Head of Logistics & Retail Research Tasos Vezyridis stated: “Driven primarily by consumer buying habits during the pandemic,” CBRE expects that the demand for logistics property will continue to rise.
“Investors and landlords will be focusing their attention on rental growth opportunities due to low vacancy rates, and a healthy development pipeline in the wake of a further compression of prime yields in Q1 2021.”
CBRE predicts that the residential market, which is very strong, will start to soften as the Government’s stamp-duty holiday and other pandemic-related support begins to fade. CBRE still expects house prices to grow by 5.9% in 2021, as opposed to 10.9% in 2021.
The 2021 investment in institutional multifamily residential has already reached PS4.2bn. This is the highest ever recorded figure, and there is another PS1.5bn of deals.
Jen Siebrits Head of CBRE UK Research stated that: “The resilience of the residential sector during the pandemic has driven a wave capital to the sector.” We expect that investment will remain strong through 2021 and beyond.
The firm expects that all UK commercial realty investments will increase by 26% to reach PS53bn by 2021 (2020: PSD42bn). This is roughly the same level as the levels reached in 2019 (PS53bn), but still a long way from the record UK high of PS70bn in 2015.
CBRE expects more regulatory action on climate change, as Glasgow hosts the COP26 Climate Talks in November. Real estate decision-makers will also be focusing on the implications for the UK’s new 2035 emission reduction target. The UK Green Taxonomy will be developed and will focus on deeper and more detailed reporting of real estate emissions.
CBRE’s Head of Environmental Consultancy Julie Townsend commented that “with the UK Government’s commitment towards placing climate-related financial disclosures, greenhouse gas emission targets, and US’s renewed commitment under the Paris Agreement, it is clear that CBRE’s UK clients are now more focused on the need to reduce real estate’s carbon emissions, and adapt buildings to a warmer planet.”
CBRE anticipates a barrage from the UK Government in the months leading to COP26 climate talks. These announcements could include a deeper and more detailed reporting of emissions and disclosures by large firms. The UK Green Taxonomy will be developed, which could identify certain aspects of real estate transactions as “not environmentally sustainable” for the first time.