After exceeding expectations in 2019, office occupier markets are likely to continue to perform well across the UK next year, with corporate occupiers increasingly using real estate as part of their recruitment and retention strategy. Office-based employment, which has grown rapidly over the past two years, is set to continue to expand in 2020, albeit at a more moderate rate.
The war for talent will drive the occupational markets, with increasing demand for new, high-quality space. Given the supply of such space remains low, further rental growth is predicted in 2020.
The industrials and logistics sector is set to remain resilient, on the back of steady demand for logistics space and the sustained growth of e-commerce. Industrials and logistics rents are expected to continue to outperform other sectors.
Next year could also see the first multifamily assets trade hands in the UK, rather than the high volume of forward-funding transactions seen in the market up until now. With developments set to spread throughout the UK, CBRE predicts investment in multifamily will increase by 30% in 2020.
In the retail sector, CBRE expects a continuation of the current challenging environment from a combination of structural (changing consumer spending preferences and the growth of e-commerce) and cyclical (wage growth above inflation and EU workforce shortages) factors.
However, CBRE expects retailers who redevelop and reposition excess retail space for alternative uses to survive and thrive in 2020. Health and beauty will continue to benefit from increasing consumer interest in wellbeing, while the food and grocery sector will perform well as convenience remains the top driver for consumers.
Operational real estate, including student accommodation, healthcare, leisure, hotels and petroleum and automotive, is set to be a major growth area in 2020, with an increasing volume of deals in the sector and the emergence of specialist and core funds, with a greater allocation of institutional capital into operational real estate. Drivers include the continued slowing of the traditional real estate sectors, the shift in focus to non-core markets as balancing real estate capital in core markets remains challenging, and the decline in lease lengths and capital growth through rent reviews.
CBRE expects the trend of the ‘hotelification’ of real estate to continue in 2020, as property investors align with best-in-class operating partners to drive volume and pricing.
Climate change will continue to rise up the agenda for real estate investors and developers. As a result of increasing social, political and regulatory pressures, CBRE predicts that carbon neutrality will become an explicit goal for real estate decision-makers in 2020.
The real estate industry will move towards a more holistic approach to tackling climate change, with the environmental impact of every stage of a building’s life cycle considered – ranging from the sourcing of raw materials to redevelopment. With increasing activism amongst shareholders and clients, CBRE expects most real estate investment strategies to incorporate carbon neutrality during the next year.