JLL predicts year of uncertainty and rising inflation

Global real estate and investment management firm JLL has released its UK Property Predictions report for 2017, predicting most notably that the coming year will bring no real clarity on the eventual Brexit deal, the UK economy will outperform most other developed nations, and that rising inflation will be the main economic story of 2017.

Property occupiers will be “forced to adapt to uncertainty and volatility in 2017”, the report asserts, highlighting “geopolitical instability, macroeconomic volatility and emerging cyber threats” as challenges that will affect their operating environments. For both domestic and international companies in the UK, the outcome of Brexit will remain the key concern.

Markets are set to be dominated by Brexit speculation over the course of the year, with events like the triggering of Article 50 in March and others capable of spurring volatility in the currency markets and elsewhere. However, the report writes, “with the French and German elections dominating the agenda on the continent, there is likely to be little real progress, or any end to the chronic uncertainty.”

The fall of the pound has benefited many areas, particularly manufacturing exports and tourism. But business confidence could wane as import prices increase – along with fuel prices – and other sectors are hit, particularly retail. 

In terms of investment in London property, Hong Kong and mainland Chinese capital will continue to lead the way in London. Investors from China have of late been pursuing ways to increase their overseas exposure. JLL also reports that “many private buyers have also viewed exchange rate depreciation as an opportunity,” and expects this to continue in 2017.   

Relocation to EU to remain limited

While some surveys show a slowdown in the pace of employee growth and investment in the UK following the Brexit vote, “2016 also saw strong evidence of long term commitment to investment in London and the UK from international occupiers including Facebook, Google, Apple, Nissan and a number of others in recent months,” according to Tom Carroll, JLL’s director for EMEA and UK corporate occupier research.

Mr Carroll indicates the same for 2017, “albeit with an increased focus on renegotiation and on building greater flexibility into lease terms and portfolio strategies”. While there is evidence that companies have engaged in contingency planning in alternative European locations, he says, “evidence of strategic relocation activity into the EU will remain limited in 2017”.

Technology and “experience” demands will increasingly shape real estate

“Faster connectivity, big data and artificial intelligence are just some of the technological advancements set to revolutionise real estate,” the JLL report says. In response, more and more companies are future-proofing and optimising their portfolios, focusing on smart buildings, more recent concepts such as incubators and accelerators, and data-driven workspaces allowing for greater personalisation and adaptive design. Aided by the growth of integrated sensors and the Internet of Things, increased technology dependence and higher data volumes will also bring a stronger focus on cyber security for real estate firms.   

While user experience has been an established concept in retail for some time, it is set to be increasingly important in the office space for attracting top talent. And “while the war for talent has been a driver of strategy for a number of years, it has risen in importance,” the report writes. Greater focus on user experience will be key for companies pursuing Millennials, the new generation of digital natives. Health and well-being, connectivity, flexibility and sustainability will also play growing roles in occupier portfolios and real estate strategy into 2017 and beyond.