A few months ago, reports described the property market as being ‘Covid crippled’, with a grim future ahead. Yet just a week or so into the new year, I feel confident in saying there are plenty of reasons to be optimistic for 2021.
Looking at the markets there is still an abundance of stored capital looking for return, not least from overseas players. Brexit won’t impact UK property anywhere near as much as people may think. The deal with the EU will encourage confidence and will provide much needed certainty around this issue, buoying the appetite of international investors. This, paired with continuing low interest rates, will be a key recovery driver in 2021.
When it comes to commercial, there will of course be winners and losers within this extremely diverse sector. Contrary to popular opinion, offices are not dead, they are just going the way of retail in the sense that the sector is becoming increasingly polarised. Workspaces located in the right places which also offer a flexible tenancy model will see good uptake. In a somewhat unexpected development, the affectionately known Cheesegrater recently achieved a record office rent for the City of London, with Ukrainian energy company Dtek paying almost £110 per sq ft for the top floor of the building. Time will tell whether this is perhaps an early sign of dampened City transactional activity turning a corner after what has undoubtedly been a tough year for commercial owners and agents.
The logistics and big box sector will also perform this year. In 2020 the amount of warehouse space taken up by UK businesses was more than two thirds higher than in 2019, as pandemic restrictions accelerated the growth of online retail. With internet sales continuing to rise, we anticipate this growth to continue throughout 2021.
Of course, there have been problems brewing in the retail sector for a long time given the structural, long term shift to online retail and omnichannel. The rents and rates are simply too high to make them commercially viable for many potential occupiers in the long term. Looking forward, it’s clear the current system of rateable value will continue to contribute to further CVAs and insolvencies over the next 24 months and by virtue, prices will begin to fall.
Looking at hospitality, it’s clear the fixed leasing model must be reviewed in this property asset class particularly if our much-loved restaurants, bars and event spaces are to survive and thrive, as the current model is harder to sustain when operators find themselves in times of uncertainty. To rectify this, we need to adopt a variable rent approach which will give the hospitality sector much needed resilience whilst aligning the interests of property owners and hospitality operators.
Amongst others, a key focus for Navana Property Group in 2021 will be build to rent. Purpose-built BTR housing is a relatively nascent concept, but we head into 2021 with many of the established owners and operators making moves in the space. You only have to look at the BTR figures to see it’s a growing market, with huge opportunities for developers and builders. Data from Q3 of 2020 shows there were 37,000 units under construction and around 84,000 in planning in the UK, and these figures really exemplify the pace of growth in the market and its potential. We’ve seen first-hand how more and more developers are looking to evolve their development, commercial and masterplanning models to accommodate the benefits BTR can bring to their developments and income, and the trend towards BTR certainly isn’t going to go away anytime soon, even in the post-pandemic world.