Five transformative trends for UK real estate in 2021
Following a year like no other, the UK real estate industry is changing fast across all sectors
Pent-up demand will propel economic growth across the UK in 2021 as people return to the workplace and resume their regular spending habits in the latter half of the year.
Although the real estate sector continues to grapple with the COVID-19 pandemic, and some ongoing uncertainty around Brexit, the EU deal and the vaccine rollout give the industry cause for optimism.
The UK economy could see the first signs of recovery from mid-2021 with record GDP growth expected in 2022.
“Given the increase in savings and the level of pent-up demand it’s not too far-fetched to argue we’re actually on the verge of a period of strong economic growth,” says Jon Neale, head of UK Research at JLL. “The advance in technology and its uptake over the pandemic – always the silver lining to any crisis – will also help speed this recovery.”
JLL’s 2021 Property Predictions event asked industry experts about the key trends to watch in UK real estate. Here are the highlights:
1. British cities will become experience centres
Once lockdown measures are eased, cities will bounce back as offices, shops and food and beverage outlets benefit from a surge in suppressed activity.
Dr Tim Moonen, Co-Founder of The Business of Cities says: “Cities have been associated with health risks over the last 12 months but that will start to shift the other way.”
All property types will need to adapt with the end-user in mind, to deliver an experience rather than simply a functional space.
In retail, physical stores will still have a place but it will be a year of reinvention, whether rethinking the customer experience or a change of use.
In the housing sector, the desire for more space will lead to more families and older people moving from cities to suburbs. City centres will therefore need to work harder to keep people coming back through a varied range of high-quality leisure attractions and workspaces that justify the commute.
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This shift could also lead London and other major cities to become even more dominated by the younger population.
2. Industrial and Logistics will dominate deals
Strong investor demand and solid returns in the industrial and logistics sector look set to continue in 2021, with £50-£55 billion of property expected to change hands.
“It’s no surprise that we see industrial and logistics continuing to dominate investors’ agendas, particularly urban logistics,” says Neale. Last year was the strongest ever for industrial leasing, and industrial investment was 43 percent up on 2019.
The alternatives sector will continue to take off as investors hunt product and yield, with build-to-rent, senior living, data centres and life sciences remaining buoyant.
Investment volumes will also rely on uplift in corporate and debt deals, more joint ventures and more public-private partnerships.
Investors will move away from single sector strategies towards mixed-use assets and they will work closely with occupiers to create more flexible and sustainable real estate.
3. Retail will be repurposed
The retail sector is arguably the biggest property casualty of the pandemic, yet the retail investment market will offer some of the most interesting opportunities in 2021.
The repurposing of empty stores on high streets and retail parks into homes and city logistics hubs is at the top of the agenda with 40,000 vacant retail units across the UK, a number expected to double by 2026.
“Repurposing this obsolete stock will unlock space for these growth sectors and right-size our industry to better serve future cities and workforces,” says Neale.
Public-private partnerships are likely to facilitate some repurposing projects and investors with ESG (environmental, social and corporate governance) objectives will seek opportunities to reinvent space in a more sustainable way.
Demand will largely centre on London and the South East along with tier one and two university towns and cities.
4. Workplaces will evolve to meet employee expectations
As people have become accustomed to more flexible ways of working, their expectations for the workplace have changed.
Emma Cariaga, Joint Head of Canada Water Development at British Land says: “Homeworking has been ok functionally but we’re all left wanting and will want to come back to the office. People will want to be persuaded back into the work environment and it needs to be of utmost quality.”
As employees return to the office for at least part of the working week, hygiene and safety will remain top of mind. Workplace design needs to focus on amenities and workspaces that genuinely add value, enable collaboration and build communities.
A JLL survey last year highlighted the rising demand for smart, sustainable and healthy buildings: 49 percent of CRE leaders said that health and wellness of employees was their top priority.
Such upgrades will come with significant cost implications and it’s likely that investors and developers, who will reap the higher rents that those exceptional assets could command, will foot the bill.
5. Sustainability is no longer optional
The government has made it clear that sustainability is a domestic priority in the UK and with COP26 taking place in Glasgow later this year, the focus will only increase.
“Sustainability needs to influence every decision if we want to meet some stretch targets set for the sector,” says Emma Hoskyn, head of sustainable client solutions at JLL.
Increased analysis of climate change risks and a growing understanding of the investment required to get buildings to net zero carbon are likely to result in some ‘stranded assets’.
Buildings with high sustainability credentials can attain a 6-11 percent rental premium over comparable buildings, according to JLL.
“Investors increasingly take an asset’s sustainability credentials into account and the research shows a rental premium. Why wouldn’t investors move in that direction?” adds Hoskyn.
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