Demand for mixed development sites set to rise in UK cities

It is likely that more development more sites in the UK, especially in London, will have mixed residential and industrial uses, according to a new outlook analysis report.

Growing urban populations in the UK’s big cities mean competition for space is intensifying and giving rise to developments that better meet the needs and demands of modern living, says the report from real estate firm JLL.

This urban living trend means amenities like bars, cafes, restaurants and shops will continue to spring up around new housing developments, it also says.

Meanwhile, the alternatives sector is still underestimated, according to JLL. The report says that student housing will continue to attract strong interest, while developers and operators are also turning their attention to less established markets like retirement living or hybrids like co-living schemes.

JLL also predicts that a shortage of Grade A office space will put the focus on refurbishment, rather than new build, and the growing appetite for online shopping, combined with expectations for faster delivery times, is ensuring urban warehouses are more in-demand than ever.

Overall, demand for grade A office space is set to remain high across the country and while political uncertainty will feature heavily in the coming weeks, the firm does not expect there will be a no-deal Brexit.

‘The next 12 months could be a pinch point in terms of the delivery of new speculative development in many markets. London’s pipeline looks thin beyond 2019, and Manchester and Birmingham account for 90% of the 1.3 million square feet scheduled to complete speculatively during 2019,’ said Elaine Rossall, head of UK offices research.

She believes that UK office markets will be insulated from any significant upturn in grade A supply in the coming 12 months. ‘An uncertain future makes speculative development a riskier prospect and developers are likely to refrain from making any significant decisions in the short term at least, seeking out pre-lets to de-risk any speculative scheme or delaying starting on-site,’ she explained.

Refurbishments rather than new builds are likely to be the order of the day, the report says and leasing activity is likely to slow down, market fundamentals across the UK remain sound and leasing activity continued to perform positively in 2018.

‘Nevertheless, there are tentative signs that momentum is starting to slow, as the economic and political headwinds impact on business sentiment. Occupier inertia is a threat to leasing activity in 2019 and we expect that companies will behave in the same vein to that seen in the period around the referendum in 2016,’ Rossall explained.

‘As such, leasing demand is likely to slow in the early part of the year, as occupiers pause to assess the implications of the Brexit deal on their business. This is likely to be short-lived as so much of today’s demand is structural and a bounce back is expected in the latter part of the year. This will support rents throughout the year, with demand remaining robust and supply limited,’ she added.

According to Neil Prime, head of central London markets and UK office agency at JLL, towards the year end there was evidence of more traditional landlords contemplating a more direct response in providing a flexible service offering to their occupier base rather than straightforward leasing to a flexible workplace operator. He believes that more landlords will implement their own flexible workplace offer in 2019.