Richard Donnell is Zoopla’s Research and Insight Director and one of the UK’s long-standing property and housing gurus, having spent 12 years previously as a Research Director for Savills and 13 years with residential valuation and analytics platform, Hometrack.
We asked Richard to provide us with an analysis of the residential market ahead of our upcoming Resi Investment and Build to Rent Conference.
What’s been happening in the UK residential sales market up until now?
Well the main headline in the housing market is that it’s been very strong and there was a large rebound in demand in the wake of the lockdown. This included a mixture of pent up demand from people that had been looking to buy previously and then those who weren’t looking but have since realised the things they want in a new home; there are 40% more people in the market looking to buy year on year, even with the shutdown of the market in the spring. Plus, the stamp duty relief has, of course, brought more people in and they will now be rushing to beat the deadline by next March.
Quite a lot of would-be buyers also have homes to sell, so there are about 20% more homes on the market than this time last year. And then we’ve got a sales pipeline of business, where people have agreed to buy a property that hasn’t yet completed, and this is 50% bigger than this time last year with £120bn of housing progressing through the sales process. It’s a huge pipeline waiting to be converted into what is essentially fee income for the mortgage brokers, property agents and other professionals that only get paid when deals compete.
What people are worried about is whether this can all continue or whether, come 1st April 2021, the market will stop in its tracks and there will be a pause in market activity.
How was has lettings market fared?
Most markets are back to business as usual, but the rental market is really divided – the demand side generally remains strong and rental growth remains positive in markets outside of London, although in the capital rents are falling. Rental markets are very localised, but they’re ultimately driven by employment growth and labour mobility, so wherever that is disrupted, short or long-term, is where we see movement.
During times of economic uncertainty and a reduced availability of mortgages for young people and would-be first-time buyers, it tends to drive rental demand. Nearly 80% of first-time buyers come from the rental market, so, if it’s harder to buy, it supports that demand, and if you’re not sure about the economic outlook, then you’re likely to keep on renting.
However, in London and some other bigger cities, people working from home and a lack of labour mobility is starting to have an impact. Rents are down 5% on last year in London because of this demand shock and what we’ve seen is that London has been particularly hit by a rising supply of homes for rent, having been added to by the build to rent (BTR) sector. You also have to consider that tourism has stopped, hitting the short-term letting market, so all those landlords will have put those properties into the long-term let market.
What’s the outlook for the Build to Rent (BTR) market?
BTR has been at the forefront of huge amounts of capital coming into the UK residential market. It has attracted the most capital, but it is one of many interesting subsectors of residential investment that are emerging such as private affordable housing investment. It all comes down to the profile of strength of the underlying cash flow and the yields that can be achieved when purchasing, as well as how it’s packaged up and managed – for potential residents, it’s selling a service and a lifestyle; what’s included within the offer?
BTR created a new type of supply, which is exactly right, but the way I see it is that there is one pool of tenants in any city that will potentially rent their home. We can get quite hung up on calling something BTR or building something to maximise land value as the industry is supply-side driven and the risk is assuming there will be a pool of demand. I accept that there is a market of people that will always want to rent brand new, but every new scheme of renting needs to find its level and position in the market and I think those in the industry are learning it more as things progress and the market evolves.
All these BTR players are joining a sea of buy-to-let landlords and the real question should be: what is the rental offer? Whether it’s in London, Liverpool or Milton Keynes. Some of the higher returns to be had are in pursuing these more interesting property segments, but it can’t yet be done at scale.
What other key rental markets are emerging?
There is limited information to base a detailed comparison of different rental tenures and investment returns, but affordable housing is an area that isn’t just delivered by public sector Housing Associations anymore and there are more affordable private funders, so I think there will be a growing connection between those. At the end of the day, it’s all housing and it’s all about the underlying cash flows that these investments deliver – whether it’s a discounted or affordable rent, it’s just a different type of structure.
There’s also a lot of new build rental coming through, typically large city centre apartment-led schemes, but there is an untapped market for rental demand for lower-density family housing market – some investors have spotted this but there is much further to go here in my opinion. The middle-aged renter is a growing trend in the UK.
So, I think the residential investment market will get broader and even more segmented just as we see in commercial property as there are some attractive and profitable market sectors, but the skill will be in packaging up the capital to deliver the supply and resulting investment and cashflow.
With recent events in mind, what are your longer-term predictions for rental appetite in London?
London is a global city and the demand for rented housing in London is very much connected to when we get international travel and tourism back up and running; when people commute again and return to offices, as well as what format offices reopen in. If you go to other parts of the country, the demand is slightly more stable and seasonal, because it tends to just be domestic residents working and commuting.
It certainly won’t be a quick fix, particularly with more supply coming to the rental market in London, although the prospect of a vaccine in 2021 may limit how drawn out the recovery period is.
Do you think the residential market will be affected by the second lockdown period?
We’re at the point where we’ve got to learn to live with this. The biggest thing for the residential market is how much the pandemic and lockdown changes the way we live and work, and I think there has been a bit of a reset, but I don’t believe the fundamentals of city centres will materially change.
We’re in a particularly strange place now, but it won’t last forever. I just think the pendulum swung too far, as it always does, and we had extreme pressure on the rental market in London because so many people wanted to live there. I don’t see us getting back to those levels, so people that are rushing into a massive commute outside of London could end up regretting it in two years’ time.
The key theme will be in flexibility and a shift in the dynamic of offices and city centres; what employers will require of employees and what offices will look like or become. However, young people will always want to be in city centres, even if they’re working flexibly – it just shifts what they want from where they live.
This is where new build will have an advantage, because it soaks up the first-choice demand from being a better-quality product. New build and high-quality will win out on poor-quality, second-hand rental supply, as long as investors and their operators don’t try and push the rent too high. Landlords are rent takers and while it might not necessarily fit with their business models, you need to price in line with demand.
Richard will be joining us to provide an analysis of the Private Rented Sector and Build to Rent at the Virtual Resi Investment and Build to Rent Conference on Tuesday 1st December 2020.
Click here for the full agenda or visit the Bookings page to secure your place.
The government’s Planning for the Future white paper entered into open consultation in August, outlining proposed changes to the current planning system and inviting views from public and private sectors, as well as the general public.
We’re taking a closer look at the proposed changes and some of the reactions it has received so far.
Local engagement
One of the biggest themes within the Planning for the Future whitepaper for England centres on localisation. The white paper encourages local authorities to rethink the way Local Plans are devised, with particular emphasis on how they engage with their communities. Furthermore, it highlights that they may be more successful in engaging communities if they place more emphasis on digital strategies.
However, this has attracted criticism from some planning experts as they point out the lack of direction provided around the recommendation, raising the point that successful engagement is achieved where trust has been established and also noting that these calls for radical change could disregard some existing and effective practices.
Digital transformation
Nonetheless, the government has acknowledged the growing calls for change as far as planning notices and local engagement are concerned, having been made significantly more evident as a result of the pandemic. Its recommendations include standardised, transparent and accessible datasets, planning decisions and contributions to enable interactive mapping functionalities and make proposals easier for everyone to understand. Quite what these proposed system fixes will be remains to be seen, however.
Building beautifully
Within its third focus on design and sustainability, the paper references alignment with the National Planning Policy Framework (NPPF) to maximise environmental benefits and target areas where an improved planning system could best aid environmental improvements.
The Centre for Sustainable Energy (CSE) has highlighted concerns that the recommendations offer little to no explanation of how crucial environmental targets will be met, notably challenging the nature of proposed Sustainable Development Tests to determine their ability to meaningfully measure whether new developments will be zero-carbon.
Infrastructure delivery
A much talked about point within the paper is the proposed abolition of Community Infrastructure Levy (CIL), to be replaced with a new levy at a fixed rate where higher value areas pay higher contributions and some lower value areas may not need to pay the levy at all; the revenue of which will fund local infrastructure projects such as roads or social infrastructure like healthcare facilities.
Whilst the proposed reforms look to ensure local authorities are able to provide infrastructure whether they sit within areas of high or low land value, the Institution of Civil Engineers (ICE) has argued that the value uplift in some areas will still be insufficient to fund the required infrastructure needed in some areas.
What’s missing?
James Blakey, Planning Director for Moda Living, has commented on the lack of recognition for the Build to Rent (BTR) sector in terms of its potential for delivering new homes at scale, so it will be interesting to see what kinds of discussion may open with the government after the consultation ends.
On the surface, Planning for the Future appears to be a genuine attempt at instigating change within the planning sector, however it is clear that, despite a high volume of recommendations, there is still a vast amount of supporting information to come in order to support and guide local authorities around resources, digitisation and planning systems, as well as expand upon the clear roles that property sectors will have to play.
We will be analysing the proposals within Planning for the Future and its responses at the upcoming Residential Planning and Viability Conference on Wednesday 25th November. Click here to book your place at the event.
References
[1] https://www.theplanner.co.uk/opinion/the-white-paper-promises-better-public-engagement-%E2%80%93-but-we-must-learn-from-existing-practice
[2] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/907647/MHCLG-Planning-Consultation.pdf
[3] https://www.cse.org.uk/news/view/2503
[4] https://www.designingbuildings.co.uk/wiki/What_the_planning_white_paper_means_for_infrastructure
[5] https://www.propertywire.com/blog/analysing-the-governments-planning-for-the-future-white-paper/
Sector reports record growth in Q1
Figures released from the British Property Federation have shown a 22% surge[1] in the number of BTR homes either in planning, under construction or complete compared to last year. Of course, as of Q2 2020, the sector saw a sudden downturn as sites closed and confidence in the economy stalled, although experts are expecting it to recover.
As early as three months on from the start of lockdown, by July it was reported that over £1.4bn worth of BTR deals were in the pipeline[2], signalling the strength and resilience of the sector, whilst research from Knight Frank predicts that over £4bn will have been invested by the end of the year[3], up more than 33% on 2019.
Unwavering demand for rentals
Leading the charge on the sector is the fact that the demand for rented property remains high, whether as a result of people choosing to rent or needing to, after strains on affordability and tougher lending measures mean first-time homebuyers put plans on hold. With an estimated 20% of today’s households renting privately[4], the desire for better managed accommodation and access to modern facilities is a logical next step for those that enjoy the flexibility that comes with renting.
In terms of how most build to rent developments are set up, moves to accommodate social distancing measures will have been fairly simple. Moreover, even where some of the biggest pulls for tenants in BTR schemes are being limited by the coronavirus outbreak, such as a greater sense of community and access to more social opportunities, development operators have been quick to respond and utilised technology to ensure their communities remain engaged[5].
Accelerating the multifamily trend
With US-style multifamily offerings now finally starting to appear in the UK, it seems the pandemic has accelerated this area of build to rent. Now considered a mature property sector within the states, experts note how the market has changed as its demographic ages, meaning developers must be able to create a variety of schemes to meet these needs and ensure tenants are still committing to long-term tenancies.
Whilst BTR is currently mostly marketed towards a young professional demographic, investors and developers should look to the US as an example to provide schemes on a broader spectrum of societal needs.
We’ll be analysing the Build to Rent market in greater depth at the Resi Investment & Build to Rent conference on Tuesday 1st December 2020. Click here to book your ticket.
[1] https://www.propertyreporter.co.uk/landlords/build-to-rent-sector-sees-growth-surge-22.html
[2] https://www.lettingagenttoday.co.uk/breaking-news/2020/7/build-to-rent-tipped-for-long-term-success-despite-sharp-fall-in-2020
[3] https://www.housingtoday.co.uk/news/build-to-rent-investment-to-hit-record-high-in-2020/5108321.article
[4] https://www.buyassociation.co.uk/2020/10/06/build-to-rent-sector-sees-record-investment-in-2020/
[5] https://www.propertyinvestortoday.co.uk/breaking-news/2020/5/how-is-the-build-to-rent-market-adapting-to-lockdown-and-social-distancing?source=newsticker
Last autumn, we examined the key factors driving the evolution of retirement living, with the biggest driver being a growing senior demographic looking for better accommodation options than their predecessors. With predictions for investment and growth within the sector looking prosperous at the time, it was just months before the world was locked down under a pandemic that would place this group of the population at greatest risk.
What effect has Covid-19 had on the care and retirement living market and what can developers learn from this period?
Creating communities to battle isolation
A demographic already vulnerable to long-term health issues and social or physical isolation, the lockdown period made this a reality for the thousands of people, as those aged 70 and over or who are clinically vulnerable to coronavirus were encouraged to shield at home for four months.
Having to rely heavily on family members, neighbours or NHS voluntary responders during this time will have been an uncomfortable realisation for many that would have previously enjoyed more independence in life, potentially acting as a catalyst to consider more appropriate living options moving forward, or reinforcing the need for stronger community surroundings for others. Successful luxury retirement village operators such as Audley[1] show just how this type of community spirit is provided for potential residents even in the face of a lockdown.
Earlier retirement planning
Likewise, this year’s sudden change in circumstances and dramatic shift in working behaviour may also spur those nearing their retirement years to make decisions such as leaving the workplace earlier, thinking about selling or downsizing their home and generally plan further ahead for their later years as they, like many other generations, weigh up the most important factors in life.
Whilst the care and retirement living sector is still growing, this could open up further opportunities as younger members of the cohort (mid-late 50s) seek options that balance independent living and opportunities for likeminded socialisation with good provision of on-site facilities for safety and reassurance.
Driving demand for better facilities
The effects of the pandemic on smaller care home operators is a stark reminder that there are not enough purpose-built facilities to cater to the later living audience and this will likely become a larger discussion point in terms of funding, provision and private investment. JLL recently highlighted that less than 50% of care home facilities are purpose-built and over 33% of bedrooms are without en-suite facilities[2]. With outdated facilities making new norms such as social distancing and contactless interactions challenging, it gives potential investors plenty to think about in terms of how they might meet this demand.
There are additional challenges associated with a sector that is vastly growing in terms of population and its requirements for long-term safety and responsible healthcare provision, namely in where the housing stock will come from and how private investors can guarantee safe and high-quality services. Thus, the likelihood is that we will see more developers partnering with known residential operators and experts in the senior living space to bring their knowledge of site finding and building, in combination with operators that can provide safe and appealing living options.
We’ll be analysing the retirement living sector in greater detail to identify key challenges, developments and opportunities at the Care and Retirement Living conference on Tuesday 24th November.
Click here to book your place at the event.
[1] https://www.audleyvillages.co.uk/audley-stories/story/community-spirit-audley-ellerslie
[2] https://www.jll.co.uk/content/dam/jll-com/documents/pdf/research/emea/uk/jll-uk-living-capital-markets-bulletin-q2-2020.pdf
During a year in which traditionally high-performing property sectors like office space, tourism and leisure have turned on their head, investors are taking a moment to reconsider their options. Will 2021 be the year that alternative residential property becomes the big opportunity, or will investors seek more stable commercial ventures?
Traditional commercial investment is diversifying
Putting short to medium-term effects of the pandemic aside, traditional commercial sectors have faced a blow this year as an increase in the time spent at home, in terms of both employment and leisure, has accelerated the growth of long-term trends such as remote working, domestic holiday lettings and subscription-model ecommerce. Leaving the future of bricks and mortar offices, hotels and retail units uncertain, investors are having to diversify portfolios or seek alternative arrangements.
Growing UK logistics
In a world where we are so used to almost-instant access to goods, growth within ecommerce and urban logistics was on the horizon long before the coronavirus crisis. However, significant increases in online trade during the lockdown period has led to the logistics sector gaining prominence as an essential type of business. Coupled with an ever-increasing shortage of space for businesses, the market is becoming an increasingly attractive investment option, as well as a good opportunity for portfolio diversification.
Turnover-based leasing and sub-letting
Research from Savills suggests that many retailers are looking to recalibrate leasing arrangements to move to a turnover rent provision, preserving the economic viability for an industry under threat, yet taking certainty over income away from landlords[1].
Forbes also notes a trend currently taking shape in the US, in which sub-leases are becoming available for spaces once dominated by large commercial enterprises[2]. Both suggest a changing relationship and shift in power between commercial tenant and landlord, potentially giving way for new and diverse businesses to emerge on temporary, pop-up or rent provision terms.
Changing office landscapes and flex operators
Another commercial area seeing growth is the flex-space operator model, in which property landlords are teaming up with specialist flexible space operators to provide a new type of offering and take greater shares of revenue, rather than simply leasing to operators[3]. JLL predicts that this area will see room for new and smaller entrants from elsewhere in the real estate market.
However, similar to the lack of certainty around sub-leasing income, flexible working spaces will present challenges to landlords in terms of shorter leases, but given that more businesses and employees are looking for flexible spaces for the foreseeable future, it’s an opportunity many can’t be seen to miss.
Operational real estate
As highlighted within our recent post-lockdown analysis, operational residential sectors such as purpose built student accommodation (PBSA), build to rent (BTR) and retirement living are continuing strong and, in some cases, accelerating as the effects of coronavirus influence living trends and demand.
Despite a shaky few months within the student accommodation sector, the recent exam results U-turn has brought optimism and opportunity for growth back to the ever-resilient market. James Duncan, Head of Real Estate at Winckworth Sherwood, notes that the key to coming out on top is in flexibility – particularly where rental payments will become a larger concern for students[4]. This is in line with recent insight provided by Brian Welsh of Nido Student who, after responding to student needs quickly, sympathetically and flexibly at the start of the pandemic, have been operating a near-business as usual model since.
Furthermore, operational accommodation providers could also soon benefit from increases in working and studying from home and decreases in city centre commutes, as less focus on location will open up more sites for development. Operators that emphasise their product and experience over location can maximise on-site amenities and investment in state-of-the-art connectivity, whilst giving investment funds access to premium products and long-term returns.
The 4th annual Alternative Residential Property Conference is taking place on 14th October, where we will be discussing the changing trends in alternative sectors and analysing the effects of covid-19.
Click here to book your place – due to limited capacity as a result of social distancing, we expect places to book quickly.
[1] https://www.savills.co.uk/blog/article/302384/commercial-property/the-future-of-turnover-leases-in-a-post-covid-retail-market.aspx
[2] https://www.forbes.com/sites/forbesrealestatecouncil/2020/09/08/14-big-factors-driving-commercial-real-estate-trends-this-year/#4d8da9cf7ee8
[3] https://www.jll.co.uk/en/trends-and-insights/investor/why-landlords-are-teaming-up-with-flex-space-operators
[4] https://www.investmentweek.co.uk/opinion/4019494/exam-turn-provides-opportunity-student-sector-growth
All photography provided by Nido Student.
Brian Welsh is the Chief Executive Officer of Nido Student, Europe’s leading developer and operator of purpose-built student accommodation (PBSA). With more than 10,000 beds across five countries, Nido Student is an institutional grade manager offering investors and residents certainty around the quality of its management, the resilience of tech, and the safety of its operations. As one of the sector’s leading experts in PBSA, we caught up with Brian to discuss the current state of the student housing sector and how it is being impacted as a result of the pandemic.
How did Nido Student adapt to the difficulties of the pandemic?
Nido adapted rapidly to ensure the safety and wellbeing of all our customers, and our team has worked tirelessly to ensure our residents remain happy and healthy – both physically and mentally – throughout this period. Once the severity of the pandemic became apparent in March, many UK students returned home. However, some chose to remain in residence, so we swiftly implemented a raft of measures to ensure both our staff and students were supported. Some of this was obvious stuff: regular handwashing procedures, alcohol hand gel supplies and social distancing – and other areas focused on digitising communications as the landscape changed overnight.
For a lot of the students who went home, we made decisions to provide refunds on rent. At Nido, we work with multiple investors and banks, so keeping communications open throughout has been another priority.
In a sector that has been fairly predictable for many years, this has been the most unpredictable by far. But despite the disruption it’s caused to the 2020 academic year, for university students and those sitting their A-levels, bookings have been remarkably resilient.
How have things varied between the UK and Europe?
Our safeguarding responsibility has very much been the same in the Netherlands and Germany, although in terms of the student housing sector there has been a less marked effect in these countries. Lettings for September 2020 have met our pre-covid targets and in Germany, we only saw six students out of 1,500 move home.
The prevailing view is that by September 2021 we will be back to normal, although there may be some disruption in Q4 of 2020 as some universities take aspects of their curriculums online. From a letting perspective, as we stand, it looks to be a busy four to six weeks.
History teaches us that, during times of economic distress, more young people go to university. In many countries, students receive loans or grants supporting education costs and so we remain confident about the long-term fundamentals of PBSA.
Will the way universities deliver courses in 2020/21 affect the sector?
It’s important to say that it’s not the case that universities will be moving courses solely online. Ultimately, universities provide a service to students paying fees, so they want students to feel they are getting value for money. And don’t forget, students still want to have the experience of going to university; they’re excited, they want the experience of vocational workshops, lab sessions, tutorial groups, and so on. The cultural experience of university is something you can’t Zoom. Some course elements will go online, but in the case of many subject types there has to be practical delivery too – it’s the typical lecture format of 200 students in a room that can and will be delivered differently.
From what I’m hearing from universities, many at the time of writing are still expecting students to arrive pretty much as normal this September.
Are you expecting international student numbers to stall?
International student numbers with offers are slightly up on last year, while it’s EU numbers that are down. The unknown will of course be around visa applications, quarantine requirements and travel arrangements for these students – the closure of some government centres for language certificates will be causing problems. Students coming from abroad, even from as close by as France, will face logistical questions. We are offering support wherever we can to both existing students and staff, as well as to new students, in what is a constantly changing environment.
How are predicted trends in student housing likely to change?
We’ve invested in initiatives to support mental health and wellbeing for several years and so have been pleased to see the importance of good mental health support rise up the agenda, and we believe this trend will likely strengthen given the circumstances. We believe in breaking down barriers between students and staff to better facilitate this, for example by placing standing desks in reception areas to remove the more physical barriers and improve communication. We have introduced safety measures such as protective screens – we don’t want to divert too far from our mission of building great sustainable communities, but obviously we have to keep safety and social distancing at the forefront.
In terms of technology, the sector was already moving towards better access and security infrastructure, using things like Bluetooth locks and increased contactless activities or access points. Undoubtedly the measures we are all adjusting to now will accelerate these developments.
The trend towards ‘everything online’ is something we’ve also focused on over the last few years. Our student customers are super-tech-savvy, and this has defined how we’ve structured our business. Our entire customer journey is online and being able to access everything in a virtual environment – whether it’s for Skype tours, signing documentation or asking questions – not only drives efficiency, it engages people in the way they’re naturally comfortable with.
The key issue on the horizon will be around what providers can do to increase safeguarding. The four brand pillars at Nido Student – community, wellbeing, sustainability, design and technology – work together to ensure this at all times. During a ‘normal’ term, typically we’d run a lot of community-based activities to bring students out of their rooms and engage with one another, but we’ve had an amazing reaction to the online activities we’ve held and have reached out to other organisations to share events, such as other student housing providers. Online yoga has been well attended and some of the more political movements around Black Lives Matter and Pride campaigns have been really popular.
What are the biggest challenges affecting investment?
There has been a squeeze on development for some time, costs are rising, and both banks and investors are more cautious, but there is still a sense that deals are there and continuing to go through. I think sales volume in 2020 will be about the same year-on-year, if not slightly higher. The biggest hurdle is that nobody wants to be seen to move first; there is a slight wait and see element in terms of what happens in September.
In terms of transactions, there’s a spread between buyers and sellers. Some buyers have a voice in the back of their heads telling them they deserve discounts, while sellers still hold power in that they don’t need to sell. In that sense, nothing has really changed for sellers. The sector is owned in large part by big investors and its fundamentals are structurally sound. Many owners have no need to sell and can comfortably wait the year out, so why would they sell now?
Brian will be joining us to further analyse the effects of Covid-19 at the Global Student Housing Conference on Tuesday 22nd September. Click here to see the full agenda or book your ticket now.
Despite gloomy predictions for the majority of property sectors as the full severity of the pandemic was realised, activity levels for many have so far proven to be resilient. Inevitably, there are some outperforming others, as swift adjustments to lifestyles and working habits alter behaviour for the foreseeable and some markets are left pondering their options for diversification.
We’re looking at which sectors are coming out on top and those that have seen the biggest hits.
Mainstream residential
As we highlighted in June, May’s re-opening of the housing market saw a bounce in activity, which was bolstered further by the announcement of temporary stamp duty reforms in July. Activity levels reported so far this month have shown increases of 60% year on year, according to Rightmove[1], whilst a recent survey by FJP investment found that 43% of 18-34-year-olds plan to take advantage of the stamp duty changes before next April[2].
Furthermore, with interest rates at an all-time low on mortgage products, the conditions for first-time buying are very favourable. Analysis by Savills highlights the biggest winners out of this will be those buying at the lower end, including via the government Help to Buy scheme, meaning the demand for new build homes has rocketed in the last month alone[3].
Build to Rent (BTR)
With more tenants starting to turn to BTR developments for the greater sense of long-term security they provide over private landlords, and the demand for renting continuing to increase month on month[4], the Build to Rent sector is quickly emerging as a risk-safe but also smart investment opportunity in an otherwise volatile market.
Previously overlooked by some investors, many will be reconsidering the advantages of long-term returns, a risk of rental decline and a guaranteed exit strategy for sites that are fully PRS. Furthermore, even with living trends shifting towards more suburban areas as more consider the full-time possibilities of remote working, this provides scope for a rise of smaller developments as opposed to city-centre high rises.
Mixed-use developments and co-working
Albeit growing steadily in frequency in the last few years, the effects of a global pandemic will likely accelerate demand for mixed-use developments as the way we live, work and make use of space enters a new era. However, more than just catering to the needs of residents looking to live close to retail and leisure amenities, transport hubs and shared workplaces, the difference now will come in how the built environment is set up for versatility and unforeseen change, with a greater focus on communities than ever before.
Purpose Built Student Accommodation (PBSA)
Previously seen as a lucrative, yet pretty safe bet in property investment, the student housing sector now faces arguably some of the bigger risks as the notion of moving into accommodation with students from other households and countries now raising concerns around individual health and safety. Whilst ensuring the health and wellbeing for students has been a key part of the adapting PBSA market, now comes unprecedented demand for flexible moving dates, potential socially distanced facilities for the foreseeable and permanent provision of sanitation stations.
A recent Savills analysis exploring the impact of covid-19 on European real estate also points to changing trends in student mobility, with predictions that more students will seek to study closer to home than before, potentially remaining with parents, whilst long-distance or remote learning will also become an attractive option in a world where job markets are uncertain and less international students consider moves abroad[5].
Commercial spaces
Unsurprisingly, the biggest losses in property as a direct result of coronavirus have come through the retail, leisure and hospitality sectors, as businesses were forced to shut their doors, leading to rising unemployment figures, wage cuts and, in many cases, permanent business closure. Whilst the viability of many high-street retailers has been argued since the last recession in 2008, the pandemic brought a bigger blow to previously undeterred services including salons, gyms and hospitality outlets.
Furthermore, providers of office space may now find units much harder to fill, as employees continue to work remotely and instead consider alternative solutions such as shared office spaces and remote set-ups away from city centres.
Conclusion
The UK property market has long been known for its resilience during unprecedented and challenging times. Arguably, the long-term returns and security of most property sectors still place property as a safer investment choice over the alternatives, but what investors must do now is what they have always done and adapt.
You can find information for all of our upcoming property events here.
[1] https://www.independent.co.uk/independentpremium/news-analysis/uk-property-prices-housing-market-record-sales-rightmove-a9674571.html
[2] https://www.buyassociation.co.uk/2020/08/20/uk-housing-market-ripe-for-young-property-investors-after-stamp-duty-cut/
[3] https://www.buyassociation.co.uk/2020/08/20/uk-housing-market-ripe-for-young-property-investors-after-stamp-duty-cut/
[4] https://www.buyassociation.co.uk/2020/08/14/rising-house-prices-and-rental-market-growth-expected-in-coming-months/
[5] https://www.savills.co.uk/research_articles/229130/301358-0
The planning process is one that has been notoriously bureaucratic and behind the times within the property industry. However, with most workplaces still closed since the coronavirus outbreak, organisations of all shapes and size have had little choice but to take business online and adapt to new ways of working, including local authorities.
So what has changed in planning and viability since then?
Radical reforms to planning rules causing controversy
Last month, the prime minister pledged to kickstart the economy and reform planning to keep the housing market moving and speed up building. Notable changes include greater flexibility for buildings and land to change use without need for full planning permission for the purpose of regenerating vacant buildings or lots to generate new homes and revive high street locations; enabling the Planning Inspectorate to use multiple procedures for appeals and removing red tape for builders and homeowners around planning applications.
Moreover, just last week it was announced that homeowners would have the ability to add two additional storeys to homes via a fast track approval system, in a bid to reduce pressure on greenfield sites.
On one hand, challenges with such radical announcements lay in how quickly they can get off the ground and make significant changes and improves to urban areas, with experts citing more of a need for localised planning instead to deliver quality developments. The Royal Institute of British Architects (RIBA) has condemned the recent move, however, insisting that this will lead to developers seeking short-term results cheaply, building sub-par housing and creating “future slums”. Notwithstanding current challenges in urban planning such as sustainability, dwindling biodiversity, resident and community health issues, such as access to services, some fear that the reforms announced fail to address the real problems in housing.
Planning committees have gone virtual
Claire Dutch, Partner in real estate practice and Co-Head of planning and environment at Ashurst, recently joined us for the Virtual Resi 2020 conference to share some insight into how planning has been affected throughout the pandemic.
Planning has gone virtual! Out of the 33 London boroughs, 31 have already held virtual planning meetings, whilst the remaining 2 have them in the diary – Claire Dutch, @ashurst
— LD Events Property (@LDEProperty) June 16, 2020
According to Claire, local authorities have really got on board with the need to embrace technology and moving planning committees online; as of the start of June 2020, Claire reported that 31 out of 33 London boroughs had already held virtual planning meetings, with the remaining two scheduled to have them at later dates.
With pre-application discussions also taking place online and less restrictions in terms of organising physical committee meetings, this paves the way for significantly sped up approvals. Furthermore, the government has also intervened to enable online planning submissions and passed new regulations that allow builders and developers to take ‘all reasonable steps’ to notify communities about new planning applications, providing some leeway where traditional methods are not currently viable.
Permission deadlines extended
In a move to keep projects moving and avoid the need to go through planning again, all planning permission due to expire within the lockdown period (23rd March – 31st December 2020) will automatically extend to 1st April 2021. This will save hundreds of projects from being cancelled, ensuring that potentially thousands of new homes and, of course, construction and operations jobs also remain in place.
What hasn’t happened?
Some property experts highlight that, despite bold promises for reform, several key changes haven’t happened that would otherwise speed up developers moving into the next stages of construction, such as the calls for localised planning as mentioned earlier.
Claire Dutch’s recent presentation at Virtual Resi 2020 also reported that Community Infrastructure Levy (CIL) charges are disrupting progress at this time, with developers claiming they are unable to afford to continue with projects currently. Whilst charges have been deferred and late payment interest disapplied for SME developers, this means that larger builders are potentially facing delays in the construction and delivery of large sites and new homes.
We’ll be discussing current changes, challenges and opportunities within planning and viability in greater depth this autumn at the Viability & Planning Conference 2020.
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The welcome news that the housing market was to reopen came on 13th May, as the government announced the first steps towards easing the lockdown’s practical restraints. What has happened since and what are the predictions for the next few months?
Activity on the rise
As many would have predicted, the reopening of the housing market in mid-May saw a surge of pent-up demand returning, with an 88% increase compared to the start of March. Additionally, with lockdown hitting the housing market at its busiest point in the year and around 373,000 sales having stalled as a result, the resumption could see an abnormal number of completions for one period, although whether or not all of them make it through the pipeline remains to be seen.
However, experts at Zoopla have warned that this is likely to be a temporary spike, with levels expected to steady over the coming weeks. Nonetheless, Local Surveyors Direct has reported a rise in activity across its sites in the fortnight since the market reopened, suggesting that there is still high intent to progress sales.
Furlough scheme tempers mainstream market
Some property professionals have claimed that the government furlough scheme is hindering businesses within the industry and have called upon the Chancellor to review the scheme, citing that a lack of resources at one point in a housing chain can be enough to cause disruption to all associated buyers’ and sellers’ transactions. The Home Buying and Selling Group goes on to note that greater flexibility within the scheme would enable employers within different services across the industry to react according to demand and facilitate smoother transactions during temporary peaks.
Savills predicts house price values to come under downward pressure as a result of the furlough scheme extension, whilst Zoopla highlights the possibility that buyers in the middle of sales pre-lockdown may also attempt to renegotiate deals. With many homeowners and would-be buyers or sellers now on furlough leave, the full extent to which this impacts the residential market is still to come. However, the news as of 29th May that the furlough scheme would allow employers to bring employees back on a part-time basis from July may bring relief for both professionals and consumers alike, with greater certainty around household incomes and the ability for property services to operate at greater capacity.
Will London lose its desirability?
A 50-day market lockdown period will bring unforeseen changes that may well go against seasonal property trends and current forecasts, with more consumers having had a significant chunk of time to consider or reconsider their needs and options for moving. For some households, this could be re-evaluating their location as the recent absence of commuting time and increased possibilities around remote working could influence where people want to live and spend time. This undoubtedly raises questions for developers and investors in terms of the future value of residential developments within the London commuter belt and potentially even office developments in central areas.
Longer-term impact still to come
As highlighted above, it’s still too early to know the full impact that COVID-19 and the lockdown period has had on the UK housing market, as the full economic impact will not be realised for some months, where employment figures and household incomes continue to fluctuate.
Other key considerations that are yet to be fully revealed include the availability of finance going forward, particularly in terms of high loan to value mortgages (LTV) for first-time buyers. Many lenders withdrew 90% or higher LTV products as they faced an influx of mortgage holiday application when the extent of the pandemic unravelled.
The London Residential conference will take place on Tuesday 16th – Thursday 18th June, where we will be joined by experts to discuss the impact of COVID-19 on the residential market. Click here to book your ticket.
Amidst a global pandemic that no one saw coming, events all over the world cancelled or postponed and students currently being taught exclusively online, the once seemingly untouchable student housing market has a whole new realm of challenges. We’re looking at the latest within the student housing sector and the considerations experts and educational institutions must now face.
Virtual learning vs. on-campus teaching
As the end of the second semester approaches, universities would ordinarily be preparing for upcoming graduation ceremonies and looking ahead to the autumn’s new student intake. However, with Cambridge University the first institution to announce that all lectures would be taught online until summer 2021, and the universities of Manchester and Reading confirming that the next term at least will be taught online, the ‘usual’ student welcome experience looks uncertain. What does this mean for the students already confirmed to start university in September and how are universities dealing with the issue of enrolment numbers vs. accommodation capacity?
Dwindling student population
As highlighted in our interview with Martin Hadland, Founder and MD of Student First Group, there was already a well-documented dip in the number of 18-year-olds that would impact universities up to around 2021. Now, instead of the usual competition for enrolment numbers at the end of the summer during the clearing period, universities and accommodation providers could potentially face mass vacancies as national and overseas students forego their places altogether, making the need to stand out even stronger.
New challenges for developers, builders and operators
Despite some construction sites able to continue work with social distancing measures in place, resource restrictions and new processes will undoubtedly cause delays for the completion of developments nationwide, with large-scale operators such as Unite Students announcing delays to several current sites.
For purpose-built student accommodation (PBSA) operators, there will be a need for significantly increased protocols around health and safety, with an increasing sense of responsibility to provide support for both physical and mental wellbeing. Considerations around maintaining shared and social areas or facilities will be high on the list to get right before operators can consider safely housing new tenants.
Nonetheless, the lessons learned during the coronavirus period also bring opportunities that experts will more than likely already be noting, such as emphasis in high quality infrastructure and connectivity to enable the ‘work from anywhere’ culture and being able to bring a greater sense of community into new environments.
Transactions continue in support of a resilient market
The student housing market is a historically resilient one, something that is being demonstrated as transactions continue go through and portfolios continue to attract interest. As of this week, a £22.2m deal has been agreed on PBSA in Edinburgh and Leicester, with advisers citing positive supply and demand dynamics placing the sector in a good position to withhold adversity.
Savills highlights that overall long-term demand for PBSA and the value of higher education as a commodity will continue to spur competition for investors seeking top assets, as opposed to hoping for a bargain during this uncertain period, noting that prices will remain fairly high for developments that benefit from good proximity to city centres and quality institutions.
We will be examining these issues and more at The Global Student Housing Conference, taking place across 23 – 25 June 2020. We will be joined by experts in the field to discuss the market response to COVID-19 and the opportunities emerging within the space. Click here to book your place.