It will become easier for investors to focus on new opportunities as the recovery becomes more secure, according to an office market forecast by real estate adviser JLL.
The report also suggests that there will be “a sharp increase in distressed assets trading in 2022 in most sectors – with logistics an obvious exception”.
Looking towards capital flows, JLL forecasts that investment volumes for the forthcoming year are likely to reach £60 billion, mirroring those seen in 2021.
The research indicates that the hotel and retail sectors will experience a revival of interest – albeit focused on particular locations and asset types – and that the flexible office market will have a busy year, with occupiers, mindful of uncertainties around hybrid working, sometimes unwilling to commit to longer-term space.
JLL’s research also highlights that the office markets in the UK’s big six cities (Birmingham, Bristol, Leeds, Manchester, Edinburgh and Glasgow) and parts of the South East will see the strongest office market returns in 2021. This is attributed to the current value for money, the attractions of more affordable housing for increasingly mobile talent, and investment in transport.
Jon Neale, head of UK research, JLL, said: “The shortage of investable assets will lead to investors becoming increasingly innovative in how to deploy capital to the sector, looking to emerging assets and repositioning. Debt funds will continue to be popular, but we expect more platform and M&A deals, as well as more joint ventures aimed at creating unique and/or stabilised assets.
“London is expected to re-emerge as one of the most traded cities in the world, despite recent headwinds. Activity in logistics and living will remain elevated, but particularly notable over the year will be the increasing interest in the major regional cities.”
JLL has predicted that 2022 will be a year of “continued polarisation in property markets”. The main driver will be occupiers, funders and investors reviewing how the geography, quality and mix of their portfolios match changing living and working patterns, as well as ESG commitments and staff shortages.
Neale added: “The gap between prime and secondary rents and yields will widen in every sector. Industrial may be an exception, given the scale of demand – but as employee experience and sustainability requirements rise, similar trends are on the horizon.”
Disruption will also continue to characterise the real estate market. Shifting demographics, accelerated tech uptake, and the rise of hybrid working will accelerate the trends seen before the pandemic in 2022.
Stephanie Hyde, chief executive, JLL UK said: “Changes in how we work will lead not just to an ongoing reconsideration of the role of the office – and office leases – but also accelerated evolution in retail and food and beverage. Sustainability remains the greatest long-term issue for real estate markets. COP26 has intensified the need for businesses to move from strategy to implementation. 2022 will be the year when this shift becomes evident in real estate, kick-starting a decade of action.
“Technology is the other major long-term disruptor. The most obvious shifts over the year will be in the booming logistics market. The difficulty faced by providers in sourcing space in London will lead to new multi-level warehouse developments. The shortage of labour and demands for ever-faster delivery will lead to rapid deployment of artificial intelligence and automation.”