Coming into the New Year, Shojin have reviewed market commentaries provided by four of the largest surveying practices. As one might expect, Brexit is a major influence on the UK’s residential market but there are inevitable differences of opinion based on what we have gathered from the likes of JLL, Knight Frank, Savills and CBRE. This combined insight is intended to provide a reasonable and well-rounded overview of how some of the biggest players see residential values in the future.
As a caveat, Shojin Property Partners stress that this document is an interpretation of the views expressed by our Big Four. Rather than depending on our summary, it is important you refer to the original documents and seek independent advice when considering your investment strategy.

UK house price forecasts
The following growth rates in house prices cover the entire UK with London’s widely reported value contraction towards the end of 2017 included in the dataset.

Market Forecast for 2018

Major influences on growth
Brexit features heavily throughout the reports produced by all four companies in our sample. There is also key emphasis on how factors such as interest rates, the ongoing housing shortage and population growth may have an impact on UK house prices.

Jones Lang LaSalle
JLL raise the interesting argument that although we continue to endure a housing shortage, build rates have stepped up and Brexit will slow UK population growth. JLL believe future price pressures generated by undersupply will be lower than in the last 20 years. The uncertainty of Brexit is expected to slow the economy in 2018 and 2019 in terms of reduced consumer and household confidence, with March 2019 signifying the end of the UK’s EU membership. Areas outside London and the South East are expected to benefit from the leave. The UK is likely to be subject to some form of transitionary arrangement during the years between 2020 and 2022. The nature of this arrangement is unknown at present but will bring greater clarity, leading to a stronger domestic economy and improved consumer confidence.

Knight Frank
Brexit casts its shadow and muted wage growth factor in Knight Frank’s assessment of UK residential prospects. They point to regional differences and have identified slightly stronger growth prospects in the Midlands, the East of England and the North West. Knight Frank consider the UK may be entering a period of elevated interest rates though they will remain low compared to long-term norms. To put this in context, Shojin consider any interest rate increases will be tentative and a gradual and measured control of economic growth. Knight Frank share the consensus view that undersupply underpins pricing.

The Savills report we have acquired provides an interesting and contrasting commentary by focusing on the state of the residential market today. It leans heavily on RICS’s (Royal Institution of Chartered Surveyors) data and a continued market pessimism with a large majority of RICS respondents reporting a falling number of enquiries. Year on year growth slowed to 2.5% in November 2017 according to Nationwide. This sits alongside Savills’ commentary on RICS’s data and the OBR (Office for Budget Responsibility) GDP growth forecast of 1.5% pa to 2021 to form a view Savills describe as pessimistic. It must be noted that despite this pessimism, Savills growth forecasts are very much in line with those of Knight Frank and JLL. The tone differs but the conclusions are very similar.

CBRE expect growth in the private rental sector to continue and mention PwC’s forecast which predicts that there will be a further 1.8m households which will be privately rented by 2025. In addition, around £30bn will be targeted towards the build-to-rent sector in the next 5 years, with a growing emphasis on investment outside of London and the main regional cities. Risks come in the form of Brexit uncertainty, US interest rates and low levels of consumer confidence and consumer spending. Short-term interest in the US has increased four times since 2015 and further increases are expected. CBRE anticipate interest changes, tight labour and capital markets may begin to bite by 2019. This will have an inevitable impact on the European and global recovery though the economic forecast feels balanced and CBRE state UK economic growth will benefit from the greater clarity on Brexit to come. CBRE speculate the most significant factors of the Brexit deal to directly affect the real estate market in the long term are: regulatory and tax change, trade restrictions on the UK economy, and migration controls on the UK labour market.

Brexit brings uncertainty and market caution, and interest rates are liable to creep up slowly and tentatively. Consumer confidence may take a hit along with salary and GDP growth, and the UK will continue to be influenced by international economies. These are factors which, to be honest, most of us will already have had in the back of our minds. None of our Big Four foresee an apocalypse and the UK will continue to hold its position as a global marketplace leader. It is likely that there may be instances of turbulence in times ahead but the Big Four anticipate steady growth which, at an average 2.6% pa, feels reasonable. Information contained herein, including projections, has been obtained from materials and sources believed to be reliable at the date of publication. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. Readers are responsible for independently assessing the relevance, accuracy, completeness and currency of the information of this publication.

Jones Lang LaSalle IP, Inc. (2017). The New Housing Paradigm.
Knight Frank LLP. (2017). UK Residential Market Forecast.
Savills Plc. (2017). UK Housing Market Update.
CBRE Ltd. (2017). 2018 Real Estate Market Outlook.

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