On Tuesday 9th March, David Prais , Head of Real Estate at Asserson Law Offices, together with Matthew Plax, Head of Corporate Banking at Bank Mizrahi Tefahot London Branch and Greg Mansell, Head of Research and Insight at Cushman & Wakefield, discussed the combined implications of both Covid and Brexit on property investments in the UK.
COVID and Brexit’s effects on the UK property market – are they connected?
- Brexit has been a slow-burner – it has not caused the cliff edge that many anticipated. Since 2016 investment volume, rental growth and residential rates have remained positive
- Covid has had a shorter and sharper effect – the market’s ability to function was seriously diminished. But we hope to overcome these challenges as we move into a period of recovery.
- The real effects of Covid can be seen in people’s attitudes regarding the future. People will start to consider new methods of working, retail and living.
- The UK market has weathered the storm better than most – thanks to the levels of prudence already implemented as a result of Brexit.
- The construction market was virtually unfazed by Covid, however Brexit has presented challenges such as the price of raw materials (steel up 30%) and the availability of labour.
- Hopefully these challenges will dissipate over time as we accustom ourselves to having left the EU.
How has the impact differed across the residential and commercial sectors?
- Despite unemployment and the pandemic people still need places to live and there remains an imbalance between supply and demand in the residential sector.
- This imbalance is reflected in the rising house prices (5.2% on house prices from February 2020 to February 2021).
- Thanks to government aid through schemes such as Help to Buy, the smaller market of sub £600k has continued to grow within the residential market.
- The SDLT holiday and the mortgage relief scheme are designed to support the property market and will help support house prices.
- Due to the ease of working from home, people may be looking for larger properties with more outdoor space, but perhaps on the commuter belt.
- Commercially, investors are now looking for properties that possess the ability to change their uses. Additionally, offices are now being analysed over whether they are engaging places to work, with high standard facilities etc. We can conclude that the best quality offices are likely to hold their value.
- Retail has unsurprisingly suffered greatly during the pandemic. However, specialist sectors such as hotels and student accommodations could be the best at bounce back.
Has the past year seen a change in demand for international investors vs British investors?
- International capital is now less than 50% of total buyers in the market, but the average trade deal size is much higher.
- Money is still coming in from the usual regions such as Asia and North America, but we are also seeing upwards trends from France and South Korea.
- In 2020 Israel was a top 20 capital source in the UK, bringing in big deals with hotels and office spaces.
- However, the bottom end of the market is still dominated by domestic investors, but many clients, especially Israeli clients, are looking for value-add opportunities.
- Asset management and changes of use are lucrative deals due to the changing nature of the market today.
- Certain properties (such as hospitality, offices and retail) will be under pressure to sell and some great discounts may be available to international investors.
How has the pandemic affected the lending market in the UK?
- The market is active and competitive. What used to be dominated by high street banks in now filled with smaller, more agile and flexible institutions.
What risks and opportunities have arisen as a result? What could we see over the next year?
- The real estate market has experienced a perspective shift; we are now looking from the perspective of the end user.
- Generally, bigger investors will want to diversify across more sectors, looking towards hotels, student accommodations, life sciences and date centres.
- Investors will be looking at the ability to develop their properties and perhaps even change functions. They may move away from focusing on income and take into consideration the quality of the building and the location.
- Alternative use is key in planning for the future.
- The retail sector has waned, with COVID exacerbating the difficulties.