Property after Covid: Finding the right intersection of profit, environment and people

The Covid-19 pandemic has not just seen normal life radically changed, but it has made many businesses question ‘what is their value to society?’ And the property market is no exception to this.

At a recent Built Environment webinar, we brought together a group of senior property people to discuss where the property market is headed. A key theme that emerged was their desire to see the property market make an economic and socially relevant contribution to the build, back better agenda.

During the last few months the panel agreed that there has been a slow-down in the progress of schemes. Whether it’s a result of the lockdown, or social distancing, decision makers on land or planning discussions haven’t been as readily available and that’s likely to be a feature for a while to come.

However, despite the short-term barriers, participants believe that helping the recovery represents a great opportunity for the sector to move from being lambasted to having a moment to shine.

This is already happening with one funder reporting that with many of the market’s high street funders running for the hills as the crisis continues, those really committed to funding property development are supporting hundreds of thousands of clients facing difficult situations.

The roundtable participants identified a number of barriers holding the property market back.

The challenges included identifying workable sites and a lack of capacity in the building trade as it faces a squeeze on materials and manpower, together with liquidity difficulties following the lockdowns for some building firms. And with these problems being identified before the pandemic and a likely hit to the supply chain from Brexit this will be a sustained problem for some time to come.

Alongside, blockages in the construction sector, the capacity of local authorities, particularly to effectively manage the planning process, given the severe financial difficulties they face and the distraction of delivering services during a pandemic, was of significant concern to the panellists.

Some also questioned whether Homes England, the Government’s house building body, will continue to see the same level of funding available to deliver ‘help to buy’ as the Government’s finances come under pressure.

Change in the structure of the UK property market was always in the pipeline, but Covid-19 has accelerated the trend in a way that will see years of transformation compressed into a much faster and more challenging timeframe.

This is already underway and as events of the start of December 2020 have shown demand for retail floor space will dramatically contract.

In contrast, demand for industrial space, already strong pre Covid-19, driven by the shift to internet retailing, has moved even further forward. Logistics will continue to be a growth area, with huge demand from investors and occupiers, creating opportunities and rising prices.

The one area where there is a big question mark is over offices. There was general agreement at the roundtable that a structural change is taking place which has been highlighted, but probably not caused by Covid. Technological advances combined with changes in the structure of business are driving that change.

While everyone could agree that working from home has significant benefits it reaches a point where productivity is reduced from not sitting amongst your colleagues or clients and creativity and innovation are reduced. As a result, there was no pessimism about the office sector, but a recognition that other innovations and trends will increase demand for different types of offices in different locations and there will be a continued flight to quality. With lots of reasons not to go to the office, corporates are looking for high quality collaborative space to entice employees back to the office.

CLS RS has recently written two thought pieces on what the new office/work and living environment might look like which you can access here for further insight into these trends.

These three markets are undoubtedly undergoing a massive structural change.  And a change that is creating obsolescence on some built stock. As a result, it seems likely that the trend will be for more development as defunct, older buildings cannot be repurposed.

More widely they panel identified, health care, care homes, retirement living and to a certain degree residential as areas where growth will continue.

Although there was a consensus that a move away from mainstream residential investments into specialist niches such as student, retirement, social and impact investment – investing in areas of severe deprivation – should all be being actively considered right now.

To deal with these structural changes, the panellists highlighted the planning system as in desperate need of significant improvement.  Many local authorities are woefully under resourced, and struggling to adapt to the virtual world, leaving developers with the cost of sitting on land that can’t be developed while navigating an expensive and uncertain planning process that needs reform and financial solutions.

Thank you to our roundtable panel which filled us with confidence, that the property sector has a vital role to play in the rebuilding of the economy and wider fabric of society.

Our distinguished panel included:

• Duncan Sutherland- Director, Sigma Capital and Vice Chair of Homes England
• Makoto Fukui – Head of Residential for UK and Ireland, Schroders
• Steve Wright – Director, Fiera Real Estate
• Ed Rowberry – Chief Executive, Bristol and Bath Regional Capital
• Mark Quigley – Managing Director, UK Real Estate Finance, Beaufort Capital
• Robin Norstrom – Director, Apsley House Capital
• Rob McDonnell – Residential Fund Manager, Aberdeen Standard Investment
• Helen Murcott – Partner, DAC Beachcroft