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Where is the market – changing landscapes in the property sector

This market update provides an Economic Outlook for the UK and London, in particular relating to the commercial and residential property sectors. The current Covid-19 situation will result in a lack of consumption resulting in reduced spending, aligned to this, loss of business investment and a reduction in the delivery of key economic goods and services.

So, UK output is set to fall significantly in the first half of the year. Total output is forecast at minus 2%, possibly slightly worse in the short term, after re-balancing during and after the second two quarters of the year. Economic performance will be delayed, rather than destroyed. The result will be a statistical recession although as the consequence of a Global health and safety shock with rapid recovery.

Looking to China, following the considerable fall in output during the crisis peak, output is now rising. A more severe but similar short-term trend to the SARS outbreak and to a smaller degree the avian flu scare.

If the UK experiences a double epidemiological spike, there is a risk of prolonged economic downturn, resulting in a longer recovery which could last through 2021 before resurgence following a sharper downturn and a slower recovery.

The fiscal and monetary policies in the UK highlight the unusual times we are in requiring economic intervention to create a cushioning effect. This is being achieved through monetary and fiscal policy.


  • The bank rate has been cut to 0.1% , the lowest since the Bank of England was founded in 1694.
  • The Bank is to purchase £200bn of assets, the majority of them being government bonds.
  • A term finding scheme with additional incentives for SME’s designed to ensure lower interest rates are passed through.


  • Government to cover 80% of the wages of workers at risk of losing their jobs as a result of disruption, up to £2,500 per month.
  • All businesses will see their VAT deferred.
  • £330 billion worth of loan guarantees for businesses.
  • Additional support for the self-employed.

UK Government debt levels are estimated to rise from £55 billion to an additional £120 billion (IFS estimate). This will have a significant effect on Government Debt with long term implications, possibly resulting in higher taxation which could cause longer term low economic growth.

Property Sector Overview and Implications

The service and professional sectors are out-performing manufacturing which may create regional disparities in recovery. Accelerated recovery is likely to occur in London and the South East.


The retail sector already vulnerable to a change in consumer preferences and purchasing habits may be further afflicted in the High Street. The UK is the most advanced digital adopter in Europe. In 2019 18% of UK purchases were on-line, a shift well ahead of Europe – by comparison Italy’s adoption rate is presently 3%. This trend has positive implications for resources related to aligned sectors – distribution and logistics, data centres and the telecoms industries.

Neigbhourhood and secondary retail is less affected with many of the retailers providing destination services (coffee shops, dentistry, hair dressing, barbers, funeral directors, niche conveineince stores to mention a few) with smaller retail footprint. In addition those smaller retailers with a niche draw, for example tourism, should continue to thrive in the medium to long term.

UK REITs in the retail sector have seen share prices fall in the past few years with retail rents in certain prime sectors likely to fall, particularly at risk are larger bulky retailers, citing for example Debenhams stores. In the medium to long term this market trend will see a change of town centre land use with some economic inertia in the short term.


Within the housing market, a material short term drop in activity is likely. The RICS earlier in the year were upbeat with a positive market outlook. This picture is inevitably predicted to change significantly in the coming months as activity halts.

Affordability within the housing sector is constrained due to high growth in the past few years, particularly in London and the South East. Comparing the pre-2008 crash to 2019 pricing, values are 50% higher in London and 30% higher in the South East. A downturn in residential prices may take longer to recover than the business / commercial property sectors, partly also due to the popularity of the residential rental sector and Purchase to Rent Schemes.

During a recent survey of 1000 millennial consumers 56% said home ownership is less important with the driver being affordability. 67% were either increasingly in debt or just about making ends meet. Purchasing is regarded as a long-term commitment whereas renting is seen as a safer short and mid term option.

Institutions have entered the Private Rented Sector. They are qualified in managing assets (unlike some private landlords, regarded fairly or not as unresponsive). The PRS investors purchase large unit schemes and provide elements modern rented sector consumers want – digital connectivity, access to leisure facilities, communal cinema space, social and community spaces. These attributes kick against the loneliness old traditional urban environments can inadvertently create –  the popularity of co shared space is likely to increase post the current Covid-19 virus episode. Re-socialisation will become even more important.

Moving to another residential growth area, the retirement living market is expanding and from a Town Planning perspective is easier to obtain development consent for as the use supports a level of employment provision. In a recent survey 61% of over 60’s said they would consider renting when they retire. Currently less than 1% of Britons live in retirement schemes, as compared to 17% in The United States.

Whilst the Covoid-19 episode will hold values back there are emerging markets and social changes taking place which are and will result in greater choices of living styles. These entrants should flatten the market. New generations no longer set the status of King and Castle. The increased provision in the rental sector also results in greater labour mobility.


The office sector, disrupted by the advent of the trendy We Work “co-working” is not as popular as the market promoters would contend, highlighted in part by We Work’s newsworthy financial woes last year when they were on the brink of insolvency and today the $3bn SoftBank purchase package has been withdrawn.

Currently 6.8% of the London supply of office space is flexi and hybrid working constitutes 25% enabling an element of co working and private space although primarily managed buildings providing flexible contract lengths with inclusive rates.

The UK is the European hub of flexible space – of 170 million sq.ft. across Europe, the UK accounts for 80 million sq.ft. or 47%. Over the past 2 years UK provision of flexi space has accelerated with some oversupply given the number and diversity of new entrants.

Although conventional office space remains dominant, the draw to flexi space highlights occupiers expectations of good service levels, shared formal and informal meeting areas, relaxation space (80% of millennials expect this), concierge, fitness areas and where scale permits, day nursery provision. Workplace psychology research suggests a link between workplace environment comfort (happiness) and productivity with commensurate positive results for staff retention and recruitment. Providing these environments is common sense. The market is moving in the right direction, provision of space fit for modern corporate business has seen a flight to quality grade buildings.

Industrial Warehousing

Under increasing pressure, especially in urban metropolitan areas, the industrial market is moving towards multi storey offers with mixes of sizes of units and where compatible mixes of industrial and residential uses. Industrial rents in London are as high as the mid £20’s per sq.ft. Vacancy rates are at historic lows and investment yields are averaging below 4%.

Taking London as an example the GLA wish to preserve industrial floor space to not less than the current net stock. With the pressure for residential stock which saw the repurposing and redevelopment of many 1970’s industrial sites with the need to preserve industrial supply, mixed use development and multi storey industrial development is taking place.

The compatibility of industrial and residential space side by side (not seen in volume since Victorian times) is affected by scale. On a building scale it’s possible to mix uses as achieved by the Travis Perkins at St Pancras Way and Northside Studios London Fileds schemes – noting trade warehouse style operations are less disruptive than heavier industrial and 24/7 logistics warehousing.

On a block scale, multi storey single use industrial warehouse schemes are taking place, one of the first in the UK was X2 at Heathrow, and St Georges Generator Northfields London. There are many examples through Europe,Bilbao Spain has several. Pro Logis have developed exceptional schemes in Japan (it’s worth looking at their web site to see the schemes at Ichikawa, Zama (just outside of Tokyo) and Narashiro).

When residential and industrial sit side by side on a neighbourhood scale, multi storey large intrusive dominant buildings with visual and nuisance impact work where only where sufficient screening is provided. One scheme currently under consideration is near The Olympic Park Stratford on a multi acre aggregates site which is being regenerated.

Where land is scarce and requirements compete it has been proven industrial buildings can reach for the sky. With Covid-19 opening further eyes and multi generational doors to e commerce on line goods delivery, neighbourhood delivery centres will expand. The industrial warehouse and logistics market in the medium and short term will remain robust.

There are other sectors effected – leisure and hotel which we are not experts in on a macro economic level. We have contacts in these areas and can point clients in appropriate directions should a forecast of these sectors be of interest.


Even the most complex businesses succeed because they serve basic human needs which are simple and unchanging. As the market changes, focusing on this anchor point will be the key to future success individually, socially and corporately. Despite the current dramatic economic inertia, the future remains bright and full of opportunity.

For specific property advice please do contact us. We are available during the working week and would be pleased to discuss any comments or questions you may have.