Where there is risk, there is opportunity
The backdrop of geopolitical and economic risk is dominating most, if not all, businesses and the property industry is not immune to this.
There is no doubt the market at the start of 2025 is more muted than some were hoping for due to a mixture of financial pressures – interest rates, cost of construction and the added NI contributions most employers are facing.
And yet where there are risks, there is opportunity as investors and developers alike explore the possibilities the market presents.
The entrepreneurs are getting busy. So where is that activity? The trend to increasing office based work (albeit for most, retaining a degree of hybrid flexibility) has accelerated demand in the office market – both the flight to quality grade-A premises but also due to pressures on pipeline and cost, a trickle down effect on the secondary stock in the market.
As a result, some landlords are refurbishing and letting their offices in a variety of options from fully fitted out to traditional Cat-A spec. Others are seeking to optimise value by looking at alternative uses – the most common we are seeing is conversion to beds, typically hotel or residential.
On the subject of residential, the government push to build more homes is encouraging for the market although the reality of the cost pressures highlighted above mean that some schemes are slower coming to the market than is really needed.
We are seeing increasingly inventive funding structures and disposal strategies as part of this. The market is adjusting to Building Safety Act requirements and now has to factor in potential delays which can arise at Gateways. A recent report by the Purposeful Finance Commission highlighted that developers now face long periods – sometimes exceeding 18 months for regulatory approvals from the Building Safety Regulator before commencing construction.
It has been reported that, as of December 2024, over 70 per cent of applications that the BSR had actually considered were invalidated or rejected. Notwithstanding these challenges, opportunities are sought out in the areas yielding the highest returns, Knight Frank’s Next Gen Living 2025 report noted that the living sectors are becoming more important for institutional investors and more diverse than they have ever been.
ESG considerations run through both the office and the residential market, with an increasing number of investors turning to green leases (office market) and a desire to use renewable energy in new developments. Indeed, it is not just developers who are factoring this in – we are seeing industrial investors seek to attract tenants and reduce bills by installing rooftop solar PV, and EV charging infrastructure becoming more common place in out of town retail.
We expect further legal reforms in relation to ESG matters, the government’s consultation on updating EPC metrics has recently closed and the consultation on raising energy efficiency standards in the residential private rented sector was published in Feb 2025 (and remains open for comment until 2 May 2025).
More widely, the desire for clean energy and concerns around network capacity (particularly with the rise of the data centre market) are leading to increasing enquiries on how to generate, store and deliver electricity, whether on solar or wind projects, and battery storage (either independently or as part of those schemes).
Last but not least, the opportunists are seeking out the bargains. Actual and potential insolvencies, or pressure on banking covenants, mean that assets are gradually sliding onto the market to be snapped up at prices that would not have been considered a handful of years ago.
Expect a lot of discussion and swapping of ideas in the sunshine at MIPIM to accelerate the activity outlined above – the opportunities are out there.