SCOTLAND RESIDENTIAL FORECASTS - JLL Residential
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RESIDENTIAL FORECASTS
SCOTLAND
House building in Scotland continues to persevere
against the backdrop of political uncertainty.
The industry is in confident and optimistic mood,
with strong demand for residential in key city centres.
The challenge for the year ahead is to address
the shortage of supply.
UK Research, January 2017
March 2014
Scotland Residential Forecasts
jll.co.uk/residential
jll.co.uk/residential
SCOTLAND RESIDENTIAL FORECASTS
OUR VIEW
SCOTLAND OUTLOOK
2
We expect residential development activity to increase steadily over the next
five years as the demand and supply imbalance intensifies. Housebuilders are
feeling more optimistic but they are treading carefully, fully aware of the recent
past as well as the uncertainties surrounding Brexit. These pressures will lead
to price and rental growth especially in key city centres.
Political uncertainty This time around our analysis,
Nicola Sturgeon is fighting Scotland’s judgement and forecasts suggest that
corner vociferously. She is clear residential property performance
on how she wants to see Scotland will be stronger in city centres than
within the new political and economic in traditional housing in out of
environment post-Brexit but whether town locations. This derives from a
she gets her way is another matter. complete turnaround in the appetite,
desire and view towards city centre
Despite the First Minister’s stance JLL RESIDENTIAL, SCOTLAND
living. The strength and pace of
and campaigning, she will not change has also led to the emergence
JASON HOGG
be able to quash the uncertainty of the Private Rented Community
that will undoubtedly overshadow (PRC) institutional investment model.
Scotland’s outlook over the next few Progress has been slow but is now
years. At the very least economic Confidence is particularly high in gathering momentum and we expect
growth and employment growth will Scotland’s key employment hubs with to see a number of specialist PRC
have a shallower profile than would several more mid-sized developers now developments in both Edinburgh and
otherwise have been the case. This keen to join the main housebuilders. Glasgow over the next few years.
said, GDP growth is forecast to be Competition and bidding between
a reasonably robust 1.3% pa over developers has intensified as a result Undeterred for now
the next five years but aggregate but they are still wary and steering As well as the economic and political
employment is set to decline as the clear of sites where they are less shadows and the tempered confidence
economy rebalances away from public certain about sales rates and pricing of developers, another housing market
and manufacturing sectors towards stability. thorn is the Land and Buildings
growth sectors such as financial and Transaction Tax (LBTT). The higher
business services. City centre and PRC evolution marginal rates of tax as well as the
Perhaps the greatest housing market 3% surcharge on second home and
Residential development optimism changes over the past 10-15 years investment purchases has certainly
Given this economic and political have been around city centre living impacted transaction volumes higher
backdrop it is encouraging to see such and renting. During the last couple up the value curve. Although 2016/2017
positivity within the housing industry. of economic downturns it has been financial year analysis is not yet
However, Scotland-wide development city centre residential markets which possible, JLL Scotland would certainly
completions of just under 16,000 units a have proved most vulnerable and support a campaign to backtrack, to
year across all tenures have increased susceptible. This was largely due to some extent at least, on the distorted
only marginally over the past five years the reliance on the buy-to-let sector nature of the reformed tax.
and remain notably below the circa in terms of sales and the unproven
25,000 units seen in 2007. nature of renters. Overall, however, the outlook for the
Scottish housing market, and for
Edinburgh and Glasgow city centres in
particular, is one of resilient optimism
with more development activity and
steady sales price and rental growth
over the next five years.SCOTLAND RESIDENTIAL FORECASTS
OUR FORECASTS 3
HOUSE PRICE GROWTH (% pa) 2017 2018 2019 2020 2021 2017-2021*
Edinburgh 5.0 4.0 4.0 4.5 4.0 23.4
Glasgow 2.5 2.5 2.5 3.0 4.0 15.4
UK 0.5 1.0 2.0 4.0 5.0 13.1
RENTAL GROWTH (% pa) 2017 2018 2019 2020 2021 2017-2021*
Edinburgh 3.0 3.5 4.0 4.0 4.5 20.5
Glasgow 2.5 3.0 3.5 4.0 4.0 18.2
UK 2.5 3.0 3.5 3.5 4.0 17.6
HOUSE PRICE GROWTH (% pa) 2017 2018 2019 2020 2021 2017-2021*
Greater London 1.0 2.0 3.0 5.0 7.0 19.2
South East 1.0 1.5 2.0 4.0 5.5 14.7
Eastern 1.0 1.5 2.5 4.0 5.5 15.3
South West 0.0 0.5 1.5 3.5 4.5 10.3
East Midlands 0.5 1.0 2.0 3.5 5.0 12.5
West Midlands 0.5 1.0 2.0 3.5 5.0 12.5
Yorkshire & the Humber 0.5 1.5 2.0 4.0 5.0 13.6
North West 2.0 2.0 3.0 4.5 5.5 18.1
North East -1.0 0.0 1.0 3.0 4.0 7.1
Wales -1.0 0.5 1.0 3.0 4.0 7.6
Scotland 0.0 1.0 2.0 3.0 4.5 10.9
UK 0.5 1.0 2.0 4.0 5.0 13.1
ACTIVITY AND DEVELOPMENT (000s) 2017 2018 2019 2020 2021 2017-2021*
UK transactions 1,080 1,110 1,150 1,200 1,260 1,160
Scotland private housing starts 11.25 11.00 11.50 11.50 12.00 11.5
Scotland private housing completions 11.75 11.50 11.25 11.00 11.50 11.4
* 2017-2021 cumulative figuresSCOTLAND RESIDENTIAL FORECASTS
SCOTTISH
ECONOMIC CHALLENGES
Scotland is faced with a number of challenges. Relationships with the rest of the
UK and the EU will need to be managed while the economy will need to switch
focus towards onshore activities and to higher growth business sectors.
4 The next five years will be all about grasping opportunities.
Economic challenges ahead Partly as a result of this investment, 21 period. Furthermore 6,400 new
The Scottish Government will need to economic growth in the cities of jobs will be created, a 1.7% rise, in
manage changing relationships with Edinburgh and Glasgow are projected the transport, communications and
the rest of the UK and the EU. At the to outpace the rest of Scotland. construction sectors.
same time, the economy must diversify Economic growth in Edinburgh is set
away from reliance on offshore oil to increase by 1.9% pa during the five Jobs growth in Scotland’s biggest
revenues, which have declined due to years to 2021, while in Glasgow the employment hubs of Edinburgh and
the fall in oil prices. economy is forecast to expand by 1.6% Glasgow will be higher than the
pa over the same period. Scottish average. Employment in
The economic rebalancing will be Edinburgh is expected to increase by
supported by an additional £800 million Employment rebalancing 3.1% between 2017 and 2021, while
fund announced in the 2016 Autumn Despite economic output increasing Glasgow should witness a 1.4% rise.
Statement. Aided by greater devolution over the next five years, total
to the Scottish Government, the extra employment is predicted to contract Housing the growing population
funds will allow for further investment slightly during the restructuring The number of households in Scotland
in Scotland’s workforce, education sector process. Overall, employment in is forecast to rise by approximately
and infrastructure projects, all of which Scotland is forecast to decrease by 0.3% 61,000 in the five years to 2021, which
will help to boost the wider economy. which equates to a contraction of 9,200 equates to an expansion of more than
jobs during the 2017-2021 period. 12,000 households each year.
Despite the challenges and
rebalancing, the Scottish economy The decline in jobs will be greatest Edinburgh and Glasgow are projected to
is expected to increase by a robust in the manufacturing and utilities grow at a significantly higher rate than
1.3% pa over the next 5 years. The sector where employment is forecast the average across Scotland. Together
expansion will be led by the financial to decrease by 6.7% during 2017-21. these two cities represent a weighty 41%
and business services sector where It is also predicted that the number of of the increase in Scottish households.
output is forecast to increase by 2.2% jobs in the public sector will contract Edinburgh is expected to increase by
pa during the 2017-21 period. by 3.1% over the same period. These an additional 15,000 households, while
declines are largely mirrored across the number of households in Glasgow is
City Region deals should also help to the whole of the UK, reflecting a expected to increase by another 10,000
boost Scotland’s economy. The Scottish changing employment market, rather over the same period.
Government have recently announced than anything specific to Scotland.
City Region deals for Aberdeen and However, the nature of the contraction Given the projected increase in
Inverness which come on the back of supports the need for greater business households, a real challenge for
the Glasgow deal in 2014 while a deal diversification moving forwards. Scotland, and particularly for
for Edinburgh also looks imminent. Edinburgh and Glasgow, will be how
The proposed deal for Edinburgh Importantly, however, the falls in to deliver the additional housing
would see the injection £2bn of public some sectors will be offset by the required. Presently around 16,000
money and is shaped around four expansion and creation of new jobs homes a year are being delivered
interconnected programmes; innovation in other sectors. There are expected across Scotland but this is not
hubs, infrastructure investment, a to be 22,000 new jobs created in the considered sufficient to cater for
regional housing programme and financial and business services sector, both the backlog in delivery and the
cultural tourism investment. a 4.0% increase during the 2017- expanding population.GDP GROWTH FORECASTS BY SECTOR
% change pa 2017-2021
1 Financial & business services +2.2
2 Transport, communications & construction +1.7
3 Retail & accommodation +1.8
4 Manufacturing and utilities +1.0
5 Public sector +0.1
6 Other +0.8
TOTAL +1.3
Source: JLL, Oxford Economics
GDP GROWTH FORECASTS HOUSEHOLD EXPANSION FORECASTS
% change pa, whole economy Expected change in number of households pa 2017-2021
2.0%
12,000
1.8%
1.2%
1.1%
3,000
0.7% 2,000
2017 2018 2019 2020 2021 SCOTLAND EDINBURGH GLASGOW
Source: JLL, Oxford Economics Source: JLL, Oxford EconomicsSCOTLAND RESIDENTIAL FORECASTS
CITY CENTRE MARKET
EDINBURGH
Residential development activity in Edinburgh city centre has been relatively
sparse over the past couple of years and with the planning pipeline also
looking quite thin, the demand and supply imbalance in both the sales and
lettings markets looks set to continue. Some schemes, however, will begin
6 on site in 2017, with some of these pure PRC developments. We expect the
appetite for land to intensify over the next 12 months as market prospects
pick up following several years of under-development.
Sales and letting markets particular note, is the West Edinburgh However, few units will complete
Demand for city centre new build / South Gyle area where Barratt and over the next 18-24 months, while
homes in Edinburgh is very strong. Persimmon are at an advanced stage the planning pipeline is looking
However, buyers are often frustrated in the development of two sites which particularly bare. A lack of suitable
by a lack of available developments will deliver in excess of 400 units. and available sites is expected to
such is the supply shortfall. Importantly, sales throughout 2016 restrict development activity over the
have been impressive where achieved short-to-medium term.
Quartermile, the 900 unit prestigious pricing has been between £275 and
mixed use development in the Old £300 psf across a wide range of house There are a few developments already
Town is in the throes of marketing and apartment types. under construction. Perhaps the most
the final phase of residential having significant is the TH Real Estate
been by far the largest and most As a result of the rising demand redevelopment of the St James Centre
successful residential development and constrained supply, sales prices where the existing shopping centre
in Edinburgh in recent years. There have increased by 5.2% on average will be replaced by new retail, a luxury
are 104 apartments in the final block during 2016. Typical prices of one and hotel, restaurants and a cinema as
of Meadows Point, most of which are two bedroom flats in the city centre well as up to 150 residential units.
already sold, while there are just a were circa £164,000 and £264,000 Completion is due in 2020.
handful of units unsold in the second respectively at the end of 2016. Average
to last phase of Meadows Peak, which new build pricing is typically £300-350 Also underway and part-complete is
sold well during 2016. Pricing at psf but in prime schemes values can Artisan’s New Waverley scheme, again
Quartermile is presently in the region exceed £450 psf. in the city centre. The large mixed use
of £520 psf with some units fetching development includes offices, retail,
above £580 psf. The city centre lettings market has been leisure and hotels plus 244 homes and
strong during 2016 with the appetite is likely to finish in 2021.
Other schemes selling in the city for city centre rental property picking
during 2016 included CALA’s up pace. The main issue for tenants Under construction too is the
development of the former Royal Mail has been a lack of availability over the development of Donaldson’s College by
Sorting Office at Brunswick Road. past year, especially in new stock. The CALA and City & Country, which will
The development of 175 units is one of resultant market pressures have led to feature the conversion of the Category
the few larger sites to have product for a 3.7% average increase in rental levels A listed Playfair deaf school building
sale throughout 2016. Pricing, which during 2016 with a typical one bedroom as well as a brand new crescent of
started off at approximately £300 psf apartment now commanding in excess homes where the first residents could
is now regularly achieving in excess of £670 pcm and a two bedroom flat move in later this year.
of £340 psf. This price increase story fetching £890 pcm on average.
was replicated throughout the city, In addition to these, there are
including at Westpoint’s development Development market a number of developers such as
at Annadale Street. The city centre development market Square and Crescent, AMA, S1,
is starting to look fairly sparse given MNM, Bellway and Kingsford who
The limited availability of sites and the advanced stages of existing are working through office and
redevelopment opportunities within developments. There are several townhouse conversions and other
the city is forcing developers to look schemes in or close to the city centre, a windfall opportunities.
further afield in locations such as West number of which are already underway.
Edinburgh, Portobello and Leith. OfEDINBURGH CITY CENTRE
SALES MARKET RENTAL MARKET
£164k £264k £670 £890
pcm pcm
1 bed 2 bed
1 bed 2 bed
AVERAGE AVERAGE
PRIME PRIME
£234k £338k £1,055 £1,450
pcm pcm
1 bed 2 bed
1 bed 2 bed
PRICE GROWTH RENTAL GROWTH
2014 6.2% 2014 8.1%
2015 3.6% 2015 6.3%
2016 5.2% 2016 3.7%
Source: JLLSCOTLAND RESIDENTIAL FORECASTS
LAND MARKET & OUTLOOK
EDINBURGH
8
Land market Murray Estate’s Garden District, argument is that with the private for
Housebuilder confidence in suburban the first phase of which will contain sale market so strong, this remains
locations around Edinburgh is high around 1,500 units, tiptoes closer to the most profitable and low risk
with numerous land purchases in securing planning consent. route to market.
the bypass zone around and above
£1m per acre. Overall, however, it is notable that Given the constraints of the city
most of the sites coming forwards centre and the lack of development
The depth of demand has also notably are on the outskirts rather than in opportunities we believe this will
expanded over the past year. Until the city centre. force PRC development outwith
recently competition for sites has central areas and into locations like
largely been confined to the four Private Rented Communities West Edinburgh and Leith.
main housebuilders in Scotland plus While there is notable interest,
the larger private developers, but as and indeed several planned PRC Outlook
was demonstrated during the sale developments in Edinburgh, none The supply of new homes in
of the 19.3 acre site at Eskbank in have yet to see a spade in the ground. Edinburgh city centre and surrounds
December 2016 there is now an active will continue to be muted over
secondary tier of developers keen to Grosvenor has plans for a 120 unit the next few years although there
muscle their way into the topflight. scheme at Springside although this are a number of schemes already
has been on the table for some time. underway. The route towards Brexit
The land market around the Also in the Fountainbridge area the and the standing of Scotland within
Edinburgh by-pass, particularly Council’s development arm EDI has the new framework will cast a slight
close to South East Edinburgh, is consent for 322 PRC units as part of shadow of uncertainty over the
very active. Developers are looking a mixed use development. EDI has City of Edinburgh but the housing
to take advantage of both the new also been though a further round of demand and supply imbalance is
transportation links, which include bids during 2016 on the former S&N very unlikely to change markedly
the Shawfair park and ride and the brewery site with a deal likely to be over the next few years.
new Border’s rail line, as well as the announced in 2017.
availability of sites at Newcraighall We expect demand for city centre
round to Shawfair and beyond into It is surprising that we have living to continue to thrive and
Midlothian. The successful selling not seen any PRC schemes come expand and should lead to sales price
of units at existing developments to fruition especially given the and rental growth well above the
in these locations has encouraged seemingly strong demand in the national averages given the supply
aggressive bidding for the new sites rental sector and the shortage of shortages. We are forecasting sales
which have since become available. rental property supply. While there prices to rise by 5% in 2017 and to
are issues such as a lack of suitable average 4.3% pa over the 2017-2021
To the west of the city there are sites and constraints imposed by period. We are also predicting strong
three key sites to watch in 2017. height restrictions, which limit rental growth, with rents expected
West Craigs and Edinburgh Park developments to 8-10 stories, even to increase by 3% in 2017 and by
have combined capacity for over the sites that have had consent an average of 3.8% pa over the five
2,500 units and are allocated and for several years have failed to years 2017-2021.
available for sale. Meanwhile, be brought forward. Part of theSCOTLAND RESIDENTIAL FORECASTS
EDINBURGH HOUSE PRICE FORECASTS
% change pa 9
2017 - 2021
23.4%
5% 4% 4% 41/2% 4%
2017 2018 2019 2020 2021
Source: JLL
EDINBURGH RENTAL GROWTH FORECASTS
% change pa
2017 - 2021
20.5%
3% 3 %1/
2 4% 4% 4 %
1/
2
2017 2018 2019 2020 2021
Source: JLL
“The lack of new build development within Edinburgh has added significant pressure on
pricing across active developments in 2016. Whilst this has clearly benefitted developers
who have had apartments to sell, the restricted availability of new opportunities within
the city boundaries is a concern. This may, however, benefit peripheral city centre
locations such as West Edinburgh and Leith where we expect considerable housebuilder
interest.”
Cameron McCallum
JLL Residential, EdinburghSCOTLAND RESIDENTIAL FORECASTS
CITY CENTRE MARKET
GLASGOW
The new build residential market in Glasgow has been a little subdued
over the course of 2016. The schemes which have been on the market
10
have sold well but the number of developments coming through has
been disappointingly low. The prospects for greater development
volumes moving forward looks more promising despite the disruption
of Brexit while the first new breed specialist private rented
development could get underway in 2017.
Sales market As a result of the rising demand The diversity of demand has certainly
The new build sales market in Glasgow and constrained supply, sales prices increased over the past year with the
is set to be far more active in 2017 have increased by 2.1% on average four Scottish plc housebuilders now
following a quiet 2016 when very few during 2016. Typical prices of one and facing stronger competition from the
schemes were on the market. two bedroom flats in the city centre emerging group of mid-sized developers
were circa £148,000 and £220,000 as well as from Housing Associations.
The Botanics, a 94 unit development by respectively at the end of 2016. Average Developers are even now prepared to
David Wilson Homes in the West End, new build pricing is typically around reduce projected profit margins in order
is currently the best-selling scheme in £300 psf. to secure the best sites although there
Glasgow with some units selling for continue to be very few single payment
in excess of £400 psf. Over half of the Rentals market purchases with phased payments
units are now sold with some already Interest in city centre living has fuelled preferred on site purchases above £3m.
occupied while the remaining units an even greater demand for rental
should complete in 2017. property in Glasgow. The lack of new 2016 has seen an increased
development to meet this growing need appetite and competition for flatted
Other schemes selling within Glasgow’s has led to a 3.0% uplift in average rental developments in prime areas outwith
West End during 2016 have seen prices values during 2016 with prime rents the city centre. There are several
ranging from £270 psf to £360 psf. shifting up by almost 6% on average. such schemes in the pipeline for
Schemes include The Atrium by Kelvin 2017 including Westpoint Homes’
Properties, which comprises a 33 unit Competition between tenants for development adjacent to the Avenue
redevelopment of the former Broomhill the limited availability continues to Shopping Centre in Newton Mearns,
School, Hillside Gardens Lane, increase with little respite expected CALA Homes’ redevelopment of the
Partickhill comprising of 6 townhouses, in 2017 given that so few new former Mansionhouse Unit site in
Kirklee Mansions, Lowther Terrace developments will be completing. Langside while a number of apartments
and the last remaining units within are included at Jordanhill Campus
Credential Homes’ Dowanhill Collection. Typically a one bedroom flat commands which is under offer to CALA Homes.
a rent of £595 pcm while a two bedroom
Overall, however, there are not enough flat rents for £775 pcm on average. It is interesting to see that Housing
new schemes to meet the growing Associations are now making a
demand for city centre living in Land market significant contribution to the
Glasgow. Demand has been increasing Demand for residential development Government’s target of delivering
during the course of the past two years land in Glasgow city centre is high with 50,000 new homes during the
with the resident population as well plenty of competition, especially for parliamentary term. Indeed they
as newcomers to the city getting more prime sites. This has led to increasing are behind some of the most high
and more comfortable with living and land values in prime locations but profile site acquisitions despite tough
working closer to all the amenities that developers remain nervous about more competition from the private sector.
Glasgow has to offer. remote and secondary areas due to Sanctuary Group, for example, recently
sales rate uncertainty. acquired the Victoria Infirmary site in
Langside for a residential-led scheme.SCOTLAND RESIDENTIAL FORECASTS
GLASGOW CITY CENTRE
11
SALES MARKET RENTAL MARKET
£148k £220k £595 £775
pcm pcm
1 bed 2 bed
1 bed 2 bed
AVERAGE AVERAGE
PRIME PRIME
£173k £270k £845 £1,300
pcm pcm
1 bed 2 bed
1 bed 2 bed
PRICE GROWTH RENTAL GROWTH
2014 4.1% 2014 7.3%
2015 4.1% 2015 5.6%
2016 2.1% 2016 3.0%
Source: JLLSCOTLAND RESIDENTIAL FORECASTS
DEVELOPMENT MARKET & OUTLOOK
GLASGOW
12
Development market 365 PRC units are planned; and against mainstream residential policies.
The prospects for the residential the Sighthill Transformational The lack of policy division is leading to
development market in Glasgow are Regeneration Area where Glasgow frustrations for developers in terms of
more promising than they have been City Council are looking for a design and viability. The development
for some time. While there have been development partner for the £250m industry as a whole is now looking to
a few notable new schemes in recent mixed use, residential-led masterplan the Scottish Government to resolve
years the quantum of development incorporating 450 units for private some of the key issues facing the sector
has been quite muted. This has sale. in the hope that PRC development can
largely been a function of subdued reach its full potential.
housebuilder confidence even during Peel Holdings also has plans to develop
the recovery phase of the latest a 232 unit PRC scheme as part of the Outlook
economic revival. There remains a Glasgow Harbour regeneration project The prospects for the Glasgow
little reticence as a result of the Brexit while Expresso Property has secured residential market look promising
vote but we expect most housebuilders planning consent for 98 homes at Park despite the shadow of Brexit.
to press ahead with their planned Quadrant in the Park district of the Housebuilder confidence is quite
schemes during 2017. city where they may begin marketing buoyant, albeit wary of more risky
units this year. projects, and this should lead to
The most notable development likely a further rise in the number of
to get underway this year is the Mace Private Rented Communities developments getting underway in 2017.
and Mercer Real Estate Candleriggs Encouragingly and following much
scheme in Merchant City. The conjecture in recent years, a number Demand for city centre living in
developers have recently submitted a of dedicated PRC developments are Glasgow is in the process of pushing
revised planning application for this likely to see construction works start through its peak with implications
mixed use scheme for 132 private this year. These include units at the for sales and lettings markets as well
apartments and 435 PRC units as Candleriggs development, the former as for prices and rents. Affordability
well as retail, hotel and student Strathclyde Police HQ at Pitt Street remains the key constraint in the
accommodation. This development and Peel’s Glasgow Harbour site. And mainstream Glasgow market given the
would be regarded as the largest city given the level of rental demand we underlying and diverse demographics
centre development in Glasgow since expect these schemes to let well when of Scotland’s second city.
Buchanan Galleries in the 1990s. they do eventually come to the market
from 2018. We expect at least one PRC
A number of other schemes are development to commence construction
also worthy of note. These include It is also positive for the sector that this year to lead the sector’s exciting
the mixed use plans for Glasgow the Scottish Government is seeking to emergence. We also expect end-user
University Campus where private for further support PRCs and is currently demand to be strong once these
sale residential units and PRC units testing a rental income guarantee schemes come to market despite rents
are proposed as part of the masterplan scheme in conjunction with Homes for likely to be above current rates. Prices
for the 5.8 acre surplus portion of the Scotland and a PRC working party. and rents are forecast to rise modestly
Western Infirmary site; the Apache in 2017 and to continue a steady path
Capital and Moda former Strathclyde An ongoing issue for PRCs is that from upwards in the ensuing few years.
Police HQ site on Pitt Street where a policy perspective it is still assessedSCOTLAND RESIDENTIAL FORECASTS
GLASGOW HOUSE PRICE FORECASTS
% change pa 13
2017 - 2021
15.4%
21/2% 21/2% 21/2% 3% 4%
2017 2018 2019 2020 2021
Source: JLL
GLASGOW RENTAL GROWTH FORECASTS
% change pa
2017 - 2021
18.2%
21/2% 3% 31/2% 4% 4%
2017 2018 2019 2020 2021
Source: JLL
“Glasgow has been the focus of interest from PRC developers and investors for the
last few years, and 2017 now sees the city with a pipeline of committed PRC schemes.
There continues to be a lack of new build development both for private sale and for
rent in the city centre, with developers continuing to express preference to west end
and south side locations where some record pricing is being achieved.”
Nina Stobie
JLL Residential, GlasgowSCOTLAND RESIDENTIAL FORECASTS
BREXIT OUTCOME KEY TO
UK ECONOMIC FUTURE
The economic and political landscape for the next five years will
14 be particularly uncertain. The outlook is highly dependent on the
negotiations, ongoing rhetoric and the final Brexit deals agreed but
output growth is expected to remain positive throughout and to return
to trend within five years even if a hard Brexit is the ultimate decision.
2016 Brexit influence 2017 reasonably robust GDP growth is expected to rise from
The vote to leave the EU has Brexit uncertainty will continue to 1.5% pa in 2018 towards a very
heightened both political and economic be the overriding characteristic in respectable 2.3% pa by 2021. The bank
risks for the UK. 2017. Rhetoric emanating from Brexit rate is only anticipated to be increased
negotiations, including the invoking of marginally in order to maintain
The UK economy is expected to have Article 50 in Q1, is likely to mean quite economic expansion momentum. Even
slowed in 2016 with business investment a turbulent time in terms of business by the end of 2021 the bank rate is only
falling. This said, post-Brexit surveys and consumer confidence. forecast to be 1.5%.
suggest that the economic slowdown has
not been as harsh as many had feared, This will mean lower business The jobs market should have returned
while averting a recession now looks investment, postponed capital spending to today’s levels by 2021 while
highly likely. and deferred employment plans. earnings growth is forecast to be as
Overall business investment is forecast buoyant as 4.3% pa. Even exchange
The Bank of England reacted swiftly to fall by 1.0% in 2017 following a rates are predicted to have recovered
and decisively. It cut the bank rate similar decline in 2016. some post-Brexit lost ground with the
to just 0.25% in August from its pound pushing above $1.30.
previous historic low of 0.5%, as well Consumer spending growth is
as announcing other Quantitative expected to ease as the supports of Forecast risks
Easing measures, in a move intended very low inflation and a strong jobs The forthcoming five year UK
to bolster the economy. market both subside. economic outlook is particularly
uncertain. Clearly much depends on
Regardless, the economy will continue There will be a shallow rise in the nature and detail of our EU exit.
to be affected by the referendum. unemployment, further dampening Our base economic forecast assumes
GDP growth, which had increased to household spending power. UK a hard Brexit with access to the
an estimated 2.0% pa by Q4 2016 is unemployment is predicted to rise single market sacrificed in favour of
forecast to slow in 2017. An easing in from 4.9% of the workforce in 2016 to immigration controls.
consumer and business confidence and 5.2% in 2017.
uncertainty about the future are the Despite this, the economic prognosis is
principal drivers of slower growth. Overall GDP growth is predicted to not too detrimental for the UK. There
slow to 1.2% pa by Q4 2017. is clearly downside risk to this quite
The Brexit vote had an immediate benign outlook, if trade agreements
impact on exchange rates with the Medium-term 2018-2021 and financial-sector passporting rights
pound notably weaker relative to all Despite some form of hard Brexit, the are not favourable.
currencies. This has also led to a UK economy is expected to regain
rise in imported inflation with CPI some forward momentum after 2017. However, this base assumption also
inflation nudging up from its low of The Brexit roadmap is likely to be a implies that there is significant upside
-0.1% pa in 2015 and is expected to be little clearer instilling a greater degree potential too.
as high as 1.6% pa by the end of 2016. of certainty and confidence for both
businesses and consumers.SCOTLAND RESIDENTIAL FORECASTS
15
UK ECONOMIC FORECASTS
GDP BANK EXCHANGE EARNINGS UNEMPLOYMENT
GROWTH RATE RATE GROWTH RATE
% pa % £/$ % pa %
2014 3.5% 0.5% $1.56 4.0% 5.7%
2015 1.7% 0.5% $1.48 3.0% 5.1%
2016 2.0% 0.25% $1.23 3.2% 4.9%
2017 1.2% 0.25% $1.26 3.2% 5.2%
2018 1.5% 0.25% $1.25 3.3% 5.2%
2019 1.7% 0.5% $1.27 3.4% 5.2%
2020 2.2% 1.0% $1.31 4.0% 5.2%
2021 2.3% 1.5% $1.34 4.3% 5.1%
Source: JLL, Oxford EconomicsSCOTLAND RESIDENTIAL FORECASTS
UK HOUSING MARKET
FORECASTS
The path towards Brexit will dictate what happens in the UK housing market.
16 However, although we expect some turbulence, we believe the housing
market will remain reasonably strong and active. Demand will be undermined
in the short-term by uncertainty and a more subdued economy while supply
issues will exacerbate, lending support to prices.
2017 2018 2019-2021
The UK housing market was returning Brexit negotiations will be ongoing The UK will formally leave the EU
to a more normal and healthy state during 2018 but the principles of our during this time. Our exit route should
prior to the referendum. Although departure should become clearer. already have been clearly defined before
UK house price growth was a little While the hard exit may not be the best exit, with economic sentiment becoming
too high, at 8-10% pa, UK transaction outcome for all, the key here is that there more optimistic and the economy
levels had pushed above 1.2m pa and will be greater certainty. This will create already on a slight upward trajectory.
new housing starts in England had a stronger base and a more optimistic
escalated to 144,000 homes pa. outlook whatever the terms of our exit. Businesses and households will
be feeling more confident and certain,
However, the referendum vote has Companies will be able to plan for the although economic conditions will be
created uncertainty for businesses, future, investing in their businesses and sound and positive rather than exuberant.
households and housebuilders. Early staff once again while households will
indications since the vote suggest a also be more certain of what the future Many people will now be feeling that
mild slowdown in housing transactions holds. The economy will start to expand they should get onto the housing ladder
and marginal easing in house price more strongly again, albeit slowly and before the next wave of strong upward
growth but nothing more sinister. cautiously at first. Employment levels will price movement and this will create
begin to pick up along with wage growth. some urgency, albeit from a reasonably
Importantly, the market slowdown is
benign starting point.
being caused by an easing in economic This will lead to slightly higher housing
growth predicated by an uncertain transaction levels as households feel
outlook rather than by a fundamental more confident about buying their first Others will be feeling more confident
lending and global crisis as we home or moving up the housing ladder. about moving up the housing ladder
experienced in 2008. There will also be increased turnover as while investors are also likely to be
more people move through job changes. more active given the more positive
This is important as there is not a housing market prospects.
sound underlying reason why house Housing construction starts are likely
prices should decline notably. There to be very low in 2018 while completions Improved confidence will also be aided
will not be widespread job losses or will still be slowing from greater by a supportive mortgage market and
household financial problems. activity in previous years. low interest rates.
However, we still predict a circa 11% Despite this, with demand accelerating Transaction levels and house prices
fall in transactions in 2017. and new supply low, there is likely to should begin to rise more strongly
be increased pressure on prices. This in 2020, as everyone settles into life
We expect prices will be broadly flat will begin in quite muted fashion before post-Brexit.
during 2017 as the number of buyers intensifying in future years.
diminishes slightly and their urgency
Rental growth should also accelerate
to buy and to pay top dollar subsides. The UK lettings market will again feel
during this period, rising to around 4%
However, we still expect demand to more stable with the need and desire to
pa by 2021.
be robust with some buyers taking remain flexible a key consideration for
advantage of more subdued conditions. occupants. Rental growth is forecast to
rise by 3% in 2018.
Although housing completions will
be rising during 2017, they will still
fall well short of need leading to some
upward pressure on prices.
The rental market should be stronger
and more active. We expect UK rents to
rise in the order of 2½%.UK HOUSE PRICE GROWTH FORECASTS
% change pa
2008 -14.6%
2012 2.0%
2014 7.8%
1/
2 % 1% 2% 4% 5% 2015 7.8%
2017 2018 2019 2020 2021
2016 7.0%*
Source: JLL, Land Registry *estimate
UK HOUSING TRANSACTION FORECASTS
Number pa
2017 2018 2019 2020 2021
1.08m 1.11m 1.15m 1.20m 1.26m 2006 1.67m
2009 0.86m
2014 1.22m
2015 1.23m
2016 1.22m*
Source: JLL, HMRC *estimate
UK RENTAL GROWTH FORECASTS
% change pa 2012 2.6%
2013 1.7%
2014 1.7%
21/2% 3% 31/2% 31/2% 4% 2015 2.5%
2017 2018 2019 2020 2021
2016 2.2%*
Source: JLL, ONS *estimateSCOTLAND RESIDENTIAL FORECASTS
HOUSING SUPPLY
OUTLOOK
The most concerning housing market impact from Brexit will be the
18 detrimental impact on housing supply. Policymakers have plans in
place and are being very positive and proactive, but the big question is
whether market forces or inducements from government will win the day.
Ultimately, and unfortunately, we think it will be very difficult to increase
housebuilding in the current climate.
Supply nudging up Fundamentally development risk has next financial year. The scheme would
The national housing supply picture in increased. encourage operators by underwriting
Scotland has improved steadily over the part of the rental income in the first
past few years but has not accelerated Many developments will still go few years.
as the government had hoped. ahead, albeit less urgently in some
cases, but some schemes will get In addition to these initiatives,
Completions in the year to Q2 2016 postponed. Importantly, however, the Government has also set aside
across all tenures was just under there is not a lending or financial funding to help people into home
16,000 units, up 16% from 13,800 crisis as we saw in 2008, so the ownership. The Open Market Shared
units in the year to Q2 2013. This impact of this “confidence” slowdown Equity Scheme and the new Help to
compares with a peak of just under is likely to be relatively muted. Buy (Scotland) scheme aims to help up
27,000 units in the year to Q2 2005. to 7,500 households buy a home in the
Supportive government three years to March 2019.
In terms of private housing, there The housebuilding slowdown
were 12,100 completions in the year will nevertheless come as a huge
to Q2 2016, a 25% increase from disappointment for policymakers who
It is hugely encouraging that
the 9,700 units completed in the 12 have been trying to tackle the national the Government is looking
months to Q2 2013. While this rise is housing supply crisis and have been at the housing supply issue
notable and welcome, it is not deemed buoyed to some extent by the slightly
as a broad problem to solve.
nearly enough to meet existing and higher numbers in recent years.
predicted demand. The proposed review of the
The Scottish Government has been planning system, coupled
Perhaps more worrying is that the vocal about supporting the need with the commitment to
number of starts has slowed over the for more housing. Perhaps most
past year. Although starts across all importantly, they have backed this
help tackle infrastructure
tenures are down just 7% compared with financial support and are blockages, is testament to
with nine months earlier, the number targeting all forms of tenure. this approach and to its
of private sector starts has dropped
fervour to do everything
11% to less than 12,000 units a year For example, they have committed
by Q2 2016. over £3bn over five years to help fund it can to help deliver more
50,000 new affordable homes which housing, more affordable
Brexit slowdown inevitable will be accompanied by increased housing and indeed more
Although there are no post-Brexit subsidy levels and a further fund
national housebuilding statistics yet, we aimed at affordable rural housing.
housing of all tenures.
are expecting the number of new starts
to slow further during both Q3 and Q4 The Government is also keen to
2016 in response to the EU vote. promote the expansion of the private Realistic hopes
rented sector. Following a consultation So the Scottish Government are
Housebuilders will quite naturally period in 2016, the Government certainly being proactive and
be more cautious as the outlook for announced in December that its thoughtful about addressing
households and housing demand budget for 2017/18 will include plans Scotland’s housing supply issue.
has become more uncertain. for a rental guarantee scheme in the The main stumbling block at present,however, is the uncertain economic volumes. Even in locations where the We are forecasting private sector
and political landscape. And whilst market dynamics support high levels starts to slow to 11,250 units in 2017,
these initiatives are welcome, the big of new supply, housebuilders are being down from around 11,500 units in
question is whether they will be able understandably cautious. 2016 and almost 12,900 units in 2015.
to have any quick or material impact We expect the Brexit uncertainty to
in boosting supply. Overall, therefore, we believe that suppress starts over the following few
market forces will win the day in the years too before greater confidence in
In terms of the private sector, short-term and we think it will be the economic outlook leads to a more
housebuilders will only build very difficult to manufacture any kind meaningful rise in starts from 2021.
if it makes financial sense for of increase in development activity in
them to do so and if the risks are the current climate, despite the best In terms of completions we anticipate
manageable. And given current efforts of the Government. these slipping to a low of 11,000 units
circumstances it will be difficult to a year during 2020 before picking up
entice housebuilders on site in greater from 2021.
SCOTLAND PRIVATE HOUSING STARTS
Number pa
2006 23.6k
2012 10.5k
10.7k
12k 2013
11.5k 11.5k 2014 13.0k
11.25k 11k 2015 12.9k
2016 11.5k*
2017 2018 2019 2020 2021
Source: JLL, Scottish Government *estimate
SCOTLAND PRIVATE HOUSING COMPLETIONS
Number pa
2006 21.9k
2012 9.9k
2013 10.5k
11.75k
11.5k 11.5k 2014 12.1k
11.25k 11k 2015 12.1k
2016 12.0k*
2017 2018 2019 2020 2021
Source: JLL, Scottish Government *estimateSCOTLAND RESIDENTIAL FORECASTS
THE FINAL WORD
“The changing perception of city centre living in recent years is likely to
mean that Edinburgh and Glasgow will lead the Scottish residential market
during the uncertainties of the next few years, despite these being perhaps
most vulnerable to unfavourable Brexit effects.
Housebuilders are more pro-development now than they have been for
some time. Encouragingly, we are now seeing the re-emergence of smaller
and mid-sized housebuilders. They are providing stiff competition to the
20
larger and more established Scottish housebuilders who have kept their
toes in the market despite tougher market conditions in recent years.
This is forcing up land values in key locations and creating a more diverse
base of developers but the battle and scarcity for prime city centre sites is
also generating opportunities and desire to develop in peripheral locations.
All of this is positive for the Scottish residential market moving forward. Let
us hope that the political and economic landscape does not undermine the
drive towards a more normal and sustainable housing market.”
Neil Chegwidden
JLL Residential Research
KEY CONTACTS
RESIDENTIAL RESIDENTIAL RESIDENTIAL
RESEARCH RESEARCH SCOTLAND
NEIL CHEGWIDDEN ADAM CHALLIS JASON HOGG
T +44(0)20 7087 5507 T +44(0)20 7399 5324 T +44(0)131 301 6710
neil.chegwidden@eu.jll.com adam.challis@eu.jll.com jason.hogg@eu.jll.com
With over 350 professionals operating from a comprehensive This is our New Residential Thinking.
network of UK regional offices, the Residential team at JLL is Join the discussion on twitter @NeilChegwidden /
@Adam_Challis / @JLLUKResi / @JLLScotland
the most comprehensive full service advisor in the market.
jll.co.uk/residential
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