Property advisor Jones Lang LaSalle said in a new research report on Thursday that it is now clear rental growth will be weaker in 2008/9, with the extent of the slowdown defined by the impact on occupier demand. The UK commercial property market continues to feel the impact of nervous financial markets against a backdrop of slashed economic growth expectations and interest rate cuts in the US and UK, Jones Lang LaSalle said. UK investment volumes have fallen significantly from over £15bn in the third quarter of 2007, to around £6.5bn recorded by JLL in the first quarter of 2008.
Property advisor Jones Lang LaSalle said in a new research report on Thursday that it is now clear rental growth will be weaker in 2008/9, with the extent of the slowdown defined by the impact on occupier demand. The UK commercial property market continues to feel the impact of nervous financial markets against a backdrop of slashed economic growth expectations and interest rate cuts in the US and UK, Jones Lang LaSalle said. UK investment volumes have fallen significantly from over £15bn in the third quarter of 2007, to around £6.5bn recorded by JLL in the first quarter of 2008.
Julian Stocks, head of capital markets, England at Jones Lang LaSalle explained: 'We have not reached the bottom of the market yet and after the outward yield movements of the last six months rental levels are now under pressure in a number of sectors. There are not many distressed sellers at the moment so there remains a gap between vendors' expectations and the prices buyers will pay. Debt remains expensive and hard to come by. One bright spot has been the continued interest in the UK from overseas investors, who invested over £2.0bn (net) in the first three months of 2008. Many see the UK as a safe haven and better value than other markets.'
Neil Prime, head of agency at Jones Lang LaSalle commented: 'One impact of the credit crunch has been to put a brake on a substantial amount of the development pipeline that was scheduled for the next five years. We estimate that the additional supply in the City office market in 2011, namely sites where construction has yet to start, has fallen to 2.87m sq ft from the 6.09m sq ft figure we were anticipating in early 2007. This should help stabilise London City rents in the medium term and support any subsequent rebound.'
Paul Guest, head of UK research at Jones Lang LaSalle concluded: 'We believe the UK will go through a downturn and avoid a recession before returning to trend growth in 2011. We expect a potential net job loss of 20,000 in the City of London. While total layoffs will exceed this figure, sustained hiring intentions in B2B business services and in retail mean that some sectors are still creating jobs. Nevertheless, a significant fall in house prices, lower consumer confidence, a sustained recession in the US and/or further turmoil in the banking sector could trigger a recession in the UK, resulting in even lower occupier demand and a deeper fall in prices than currently expected.'
