The UK commercial property market is likely to see mixed fortunes in 2012, according to a new report. Jones Lang LaSalle's latest Property Predictions publication suggests this year will be stronger than 2011 and will serve as a platform for further growth in 2013, but notes there are several economic metrics - such as decreased consumer spending power - that may hamper any expansion.
Jones Lang LaSalle UK executive chairman Richard Batten predicts that the first half of 2012 will bring little movement in either direction, but the Olympic Games together with asset purchasing activity on the part of the Bank of England "will provide a much-need[ed] boost to confidence" in the latter six months of the year, albeit at a relatively slow rate. Rental returns on commercial property investment look set to remain steady, although the early part of the year will be "difficult", says Jones Lang LaSalle Europe, Middle East and Africa research director Andrew Burrell.
This comes after the IPD UK Monthly Index for November 2011 revealed the first capital decline in the UK commercial property sector in 28 months due to factors such as the eurozone crisis, high inflation and unemployment, and negative forecasts for economic growth. Overall returns on real estate investment stood at 0.5 per cent and were entirely accounted for by income returns. The retail industry drove the drop in capital values, with the office market being the only category to experience positive growth of 0.1 per cent.
"Average rents have not seen as strong a recovery as prime thus far, but also show modest year-on-year increases," Mr Burrell explains. "Overall, commercial sectors show much greater rental stability than during the global downturn of 2008-09." It is expected that a shortage of quality properties will keep prime headline rents strong, although the central London market is likely to see a significant slowdown this year.