By Harry Fenner, CEO of Navana Property Group
Earlier this year, reports described the property market as being ‘Covid crippled’, with a bleak future ahead. This came as a shock after a ten-year bull market, fuelled by monetary easing. There is no blueprint for the situation we now face and every sub-sector of property is facing its own unique challenges. However, the market has bounced back during the last six months and there are plenty of reasons to be optimistic.
Retail is operating on a shoestring
There has been trouble brewing for the retail sector for a long time. With 26% of retail shopping done online, there are, in my opinion, far too many secondary locations, which are of low appeal to shoppers, retailers and ultimately investors. When it comes to retail, Covid-19 has been nothing more than the straw which broke the camel’s back. With online shopping on the rise, 2021 will see greater returns in the industrial sector, with increased need for warehouse storage. None the less, retail still needs curtailing in my view. The rents and rates are simply too high to make them commercially viable in the long term – the sector operates on a shoestring and the pandemic has exposed this more than ever. Looking forward, I believe the current system of rateable value will see more and more liquidation in the next 24 months and by virtue, prices will begin to fall.
Hospitality will be resuscitated
Despite what many of the pundits have said, hospitality continues to have a very strong place in the market and will be resuscitated for sure. However, the fixed leasing model must be reviewed. The hugely capital-intensive operational costs associated with the hospitality sector are usually not a problem. But this model is harder to sustain when we find ourselves in uncertain periods like now. Banks do not like it but I believe we need to adopt a variable rent approach to give the hospitality sector more resilience.
Residential will bounce back
Housing market resilience will continue into 2021 and house prices will bounce back. With the vaccine now being rolled out, we’re likely to see an uptick in property listings as more people begin to feel comfortable with the prospect of moving. What’s more, interest rates are set to remain low and the banks are still keen to lend, whilst the stamp duty holiday will continue to motivate buyers until the spring. Whilst areas outside of the main cities with good transport links will continue to have healthy growth, contrary to popular belief, residential in city centres will continue to thrive. Even during the midst of lockdown, we saw some of the highest real estate prices paid for prime London stock. It’s true this year has seen a rise in flexible working and increased desires for green space, but there will always be an appetite for city living. The recent u-turn from the Government to help stimulate the urban residential sector and with planning emphasis on 20 cities across the country will help to satisfy this demand. Developers must think more carefully about how properties are built though – externals as well as internals. Should air conditioning be the norm in new apartments. Is outside space a must? These are all questions which should be considered.
Areas to watch
At Navana Property Group, 2021 is going to be a year for us to focus fiercely on the commercial and Build to Rent sectors. Purpose-built BTR housing is only a recent concept, but it has continued to prove its resilience and we head into 2021 with continued optimism surrounding it. You only have to look at the BTR figures to see it’s a growing market, with huge opportunities for developers and builders. Data from Q3 of 2020 shows there are 37,000 units under construction and around 84,000 in planning in the UK – with over 90,000 expected to be in planning by the end of the year. These figures really exemplify the pace of growth in the market and its potential. We’ve seen first-hand how more and more developers are looking to change their models to accommodate the benefits BTR can bring to their developments and income. It’s a trend which certainly isn’t going to go away anytime soon, even in the post-pandemic world.