Strategic real estate advisor Avison Young has released its UK National Outlook for 2021, with predictions for the commercial real estate industry spanning office, retail, residential and industrial sectors.
Jo Davis, Managing Director Planning, Development, Regeneration, Avison Young, Bristol, says:
“We have just witnessed the largest economic hit the UK has ever seen and the landscape is unrecognisable from a year ago. How the commercial real estate industry, and indeed the wider economy, is impacted in 2021 largely depends on when the pandemic can be brought under control, with Brexit another potential cause of disruption.
“While the accelerated structural shifts in our real estate markets provide opportunities to implement change that will ultimately benefit our economies, communities and the environment, they currently also add a high level of uncertainty for investors and occupiers.”
The changing attitude towards the role of workplaces will impact activity in the office sector in the coming year. In the short-term, occupier requirements are being re-evaluated as businesses look to mitigate costs and respond to a rise in homeworking. However, those who are able to take a longer-term view on the growth of their business are already looking at ‘futureproofing’ requirements. This will result in an emergence of a two-tier market with activity focussed on the larger end of the market, particularly through pre-letting. The office will remain a key space for collaboration, innovation, relationship building and mentorship, sustaining a level of demand in key regional markets throughout 2021. The new year will likely also bring examples of the emerging flexible ‘work near home’ concept, with several operators actively looking for space in commuter and suburban towns.
While the UK has long been one of the leading proponents of online retail, the past months unsurprisingly saw a giant leap forward for online sales, with the peak of the crisis seeing online retail increasing to 34% of total sales in May. New lockdown measures and a likely permanent shift in consumer habits will underpin the strength of online in the long term. Over the short-term, a number of out-of-town destinations and some local high streets have been relative beneficiaries, as people have spent time closer to home, benefiting the local economy. However, an increase in the number of business failures within the sector will become increasingly likely as sustained government support and the moratorium on evictions come to an end during 2021. This will undoubtedly lead to a rise in vacant space across the UK’s retail sectors and physical stores will have to evolve to stay relevant, with an increase in showroom concepts, a focus on experiential retail and click-and-collect.
2020 will likely be a record year for Big Box take-up across the UK. Amazon has been the most notable active acquirer of space, but a number of supermarkets have also doubled their online platforms and high street retailers have been increasing their online presence.
The rise in homeworking and a focus on health and wellbeing have already led to a sharp increase in minor planning applications to extend living space and a vast number of owners have been upsizing or moving to more rural locations. This may reduce some of the upward pressure on house prices in major cities. Further, the search for strategic land is likely to intensify, as consumer demand is borne out through planning and design. The heightened awareness around the effects of poor housing and lack of accessible outdoor spaces in many urban areas will be reflected in 2021, particularly in urban design, as city planners and designers adapt to reinvent cities in the wake of the pandemic.
Commercial real estate investment
Economic uncertainty, structural shifts in occupier markets and restrictions on mobility continue to weigh the market down. Debt, whilst cheap, is increasingly difficult as lenders look for increased assurances to mitigate risk. Despite this, a wall of money looking for a yield and the certainty of interests remaining low for the foreseeable future is helping underpin demand, particularly for core stock in the majority of our key markets. Overall, industrial looks set to be the best performer 2021. Big Box space and smaller lot sizes focussed around supply chains and e-commerce will continue to attract significant demand, along with data centres.