UK Property Experts On The Investments, Sectors And Regions Set For Growth in 2021
RSM’s annual Real Estate 360 survey paints a very different picture for the market in 2021 than last year. The last 12 months of unprecedented upheaval have placed office investment in a very different light, while new working practices are drawing people away from London.
However, many of the current changes to commercial real estate are the result of accelerating trends that were already having an effect, albeit at a much slower rate, RSM partner Howard Freedman said. Here he highlighted some key findings from the survey.
Offices Are Out
One insight is a general sentiment in the market that the mass exodus of office workers during the coronavirus pandemic and national lockdowns will have a long-lasting impact on the sector. Sixty percent of respondents expect commercial office demand to decrease over the next two years. However, 81% of respondents believed that demand for flexible office solutions will increase.
For this flexibility to work in the sector, however, landlords, property owners and tenants will need to work together, Freedman said. The way leases are drawn up, for example, needs to provide a level of security for all stakeholders. The survey report highlighted how landlords have been feeling the effect of the crisis on their cashflow, having not been able to access the level of government support that tenants might have received.
“High-grade offices will still be in demand as occupiers flock to quality," Freedman said. "We think that occupiers will have to be more open to sharing the risks, otherwise market forces will dictate they will have to. What incentives landlords are able to offer occupiers will be an interesting point to watch as we exit lockdown and are able to embrace city life again.”
Alternatives Are In
With office occupation potentially set to plummet as lease events allow businesses to reconsider their real estate strategies, alongside similar disarray in the physical retail sector, Freedman believed that a raft of properties is likely to go up for sale in the coming year.
“Investors will be looking to rebalance their portfolios,” Freedman said. “We are starting to see a number of properties coming to market where that is the case. Many firms will be looking to reduce the amount of space they are taking, forcing property owners to consider reacting to this change of company strategy.”
The survey highlighted that investors are looking at different asset classes. The office and retail sectors are being “significantly challenged by alternative asset classes”, a change that has been accelerated in the short term due to the pandemic and is likely to continue in the medium term.
Respondents highlighted data centres (56%) and industrial and logistics (69%) as two sectors that are likely to see investment growth over the next 12 months. Investment from overseas investors was expected to continue despite COVID-19, particularly from Asia and the Middle East.
“The UK is still an attractive market as it is considered relatively stable both politically and financially, particularly as a Brexit deal was secured,” Freedman said. “Yields are higher than the EU average, increasing the value and returns proposition.”
In answer to which infrastructure type should be prioritised to support the UK economy and real estate sector, the most popular choice was green energy options. Freedman believed that this reflects the real increase in ESG benchmarking over recent years, as investors start to take action on long-term climate risk in their portfolios.
“Institutional investors are interested in portfolios which are more sustainable and can demonstrate a pathway to achieving net zero in line with UK government targets,” he said. “This is in line with a wider asset management trend where we are starting to see significant reallocation of capital towards sustainable investments.”
To The Regions
One symptom of the pandemic that might not have occurred without COVID-19 is people’s growing desire to leave city centres. National lockdowns have increased homeowners’ desire for space while working from home has demonstrated that a daily commute to the office isn’t always necessary.
“We believe that there is a strong possibility central London residential prices will remain stable or slightly fall,” Freedman said. “However, demand and prices for outer London suburbs and beyond will continue to increase. This is separate to the London prime residential market.”
Looking at commercial property, respondents indicated that investment in property overall outside London is expected to increase, particularly in the North West. Only respondents located in London and the South East identified the city as the region with the greatest expected widening yields for commercial properties.
The survey questioned respondents on many factors that could have an impact on property values and take-up, including HS2, wider infrastructure developments and potential planning reforms. With all this on the cards, next year’s survey could reveal an entirely different picture again.
This article was produced in collaboration between RSM and Studio B. Bisnow news staff was not involved in the production of this content.
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